House prices have gone up by 1.6% over the past month according to Nationwide. The average home is now valued at £160,224, just 2.7% lower than this time last year. This is quite a different picture from earlier on in the year. Back in February prices were 17.6% lower, on average, than in February 2008.

Many estate agents are also reporting increased interest from buyers and the most recent survey from the Royal Institution of Chartered Surveyors said that 63% of its surveyors reported that prices were rising rather than falling.

Mortgage lending is also on the up. The number of mortgages approved for house purchases is at a 17-month high according to the latest figures from the British Bankers’ Association – lending was 7.4% higher in July than in June, and 77% higher than in June 2008.

What’s behind the turnaround?

There are a number of factors thought to be contributing to the recent upturn: confidence appears to be returning to the market. Last year house prices were falling, the country was entering recession and we were in the midst of the financial crisis. The general feeling was that things would get worse before they got better. But with ‘green shoots’ appearing, confidence is returning and there are indications that prospective property buyers who’ve been sitting on the sidelines are now coming back to the market.

Confidence isn’t the only factor affecting the housing market. Low interest rates are also thought to be playing a part. The Bank of England base rate is at an all-time low of 0.5% and even though lenders have widened the margin between that and mortgage rates, the cost of borrowing is still low. Coupled with falling house prices, many people are finding it easier to get onto the property ladder.

Others are seeking to ‘bag a bargain’. One of the reasons why house prices have fallen more than most economists were expecting is because of an increase in the number of repossessions and forced sellers – those who can’t afford their mortgage payments. As is always the case, some people look to profit from the misfortune of others. With prices in some areas having plummeted as much as 50%, buyers are finding are really good opportunities to be taken advantage of.

We’re not out of the woods yet

However, while conditions may be improving, the housing market remains weak. And analysts believe that we won’t see a full recovery until some sort of normality returns to the mortgage market.

There have been a few signs of improvements in the mortgage world of late. Only this week First Direct announced it was reducing the arrangement fees on some of its mortgages and research we carried out at found that mortgage fees have fallen by an average of 25% over the past 12 months.

This is obviously good news as mortgage set-up costs have soared in recent years. That said it’s not enough to overcome the problems in the mortgage market.

Banks and building societies remain cautious about who they will lend to, and while no one is advocating a return to the situation a few years ago when many providers were implementing irresponsible lending practices, there is a feeling that the pendulum has now swung too far the other way.

The leading mortgage rates are only available to those with large deposits – many lenders require you to put down at least 25% and in some cases a down payment of 40% is required. This means that thousands of potential first time buyers are struggling to get onto the property ladder because they can’t get a mortgage. There are products available to those with smaller deposits but the choice is more limited and the rates less competitive.

Until 90% mortgages become more readily available again the housing market is likely to remain subdued.