British house prices rose this month at the slowest annual pace in more than two years, according to mortgage lender Nationwide, although it warned the slowdown might not persist unless house-building picks up significantly.
House prices rose 3.2 percent year-on-year in August, the weakest annual rate since June 2013, compared with a 3.5 percent rise in July.
Economists polled by Reuters had expected the rate of growth would fall to 3.1 percent this month.
On a monthly basis, house prices rose 0.3 percent, in line with expectations and down slightly from a 0.4 percent increase in July.
Nationwide said the figures were further evidence that annual house price growth may be stabilising close to the pace of earnings growth, with regular pay excluding bonuses at just under 3 percent during the second quarter.
"However, survey evidence cautions that this trend may not be maintained unless construction activity accelerates," said Robert Gardner, chief economist at Nationwide. "Surveyors reported the lowest ever number of properties on their books in July, on data extending back to the late 1970s, whilst new buyer enquiries picked up."
He added that a significant increase in construction activity would be needed to avoid affordability becoming further stretched in the years ahead.
The government last month announced a plan to remove obstacles to building new houses after it helped cause a surge in house prices in 2013 by backing subsidies for people trying to get on the property ladder.
Mortgage lending across the UK in July was at its highest level for seven years, according to the Council of Mortgage Lenders (CML).
Home-owners borrowed a total of £22bn in the month, the highest amount since July 2008.
The CML said total mortgage lending for the year was likely to hit £209bn, which would mean a 3% increase on 2014.
It also said it expected lending to pick up in the second half of the year, following "subdued activity" earlier.
"We expect lending activity in the rest of the year to be underpinned by improving economic fundamentals, but kept in check as any upward pressure on house prices further stretches affordability for some buyers," said CML economist Mohammed Jamei.
The total amount of money lent naturally gets bigger as house prices rise, and home-owners need to borrow more.
