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However, overall house prices are still 12.4 per cent lower on an annual basis, with average UK house prices returning close to the level seen in January 2006, at around £170,866.

According to the Halifax House Price Index for September, property prices declined by 5.2 per cent in the third quarter of 2008.

This was very similar to the fall of 5.1 per cent in the second quarter of 2008, indicating that the rate of price falls may be beginning to stabilise.

Martin Ellis, chief economist at the Halifax, said: "The overall price increase in the three months to September was very similar to that in the previous quarter indicating that the trend rate of decline may be beginning to stabilise."

The house price to average earnings ratio, a measure of housing affordability, has improved, dropping from its peak of 5.84 per cent in July 2007 to 5.02 per cent in July 2008.

This is the lowest level for more than four and a half years.

Halifax is predicting further improvement in the ratio as prices continue to soften. The long-term average is 4 per cent.

Ellis added: "The ongoing pressures on householder's income, combined with the reduction in the availability of mortgage finance, however, mean that market conditions will remain challenging."