House prices in the UK saw a modest increase between August and September despite recent turmoil on world financial markets, according to a new report.

Nationwide said in its monthly analysis of the housing market that prices had seen an increase of 0.7 per cent and inflation had fallen 0.6 per cent, with the average price of a property now standing at £184,723.

Fionnuala Earley, Nationwide''s chief economist, said: "Overall, house prices defied the gloomy predictions of some recent headlines, but their underlying growth is still on a decelerating trend."

Although the credit crunch will make it harder for those who want to take out a high loan-to-value mortgage, Ms Earley suggested that some people could benefit from the knock-on effects the turmoil has had on the Bank of England''s approach to rising interest rates again.

"The likelihood is now that we will see a cut in base rates early in 2008, which is good news for mainstream borrowers and those coming off fixed rate deals," she added.

Howard Archer, chief UK economist at analysis firm Global Insight, told the Guardian that "the ongoing resilience in house prices indicated by the Nationwide data is likely to add to the Bank of England''s caution over any near-term cut in interest rates."