Figures released this week by Nationwide, reveal that UK house prices increased by 0.7% in January and were 8.8% higher than in January 2013.

At the same time activity levels in the housing market seem to be picking up, with HMRC reporting a 30% increase in the number of transactions in December 2013 compared to December 2012.

It is thought that there are a number of factors driving the rise in prices and activity levels:

• An increase in first time buyers: up 32% in the third quarter of 2013 to 73,700 from the same period in 2012. First time buyers, considered the lifeblood of the property market, accounted for 44% of activity which, says the Nationwide, is close to an all-time high as a share of lending activity.

• A decline in interest rates which, together a modest increase in nominal earnings, means that the typical mortgage now accounts for around 19% of borrowers’ average monthly earnings, below the 24% recorded before the financial crisis and slightly below the long term average.

• The performance of the wider economy, especially the labour market with 280,000 new jobs created in the three months to November – the largest increase on record.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, stated that although house prices continue to rise they are still 4% below their peak in 2007.

He also pointed out that the estimated one million first time buyers who have bought houses since interest rates plummeted in 2009, have not yet had to cope with rises in interest rates and recommended that they be prepared “for the prospect of interest rates increasing back towards more normal levels”.

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