"A 5% annual rise in values sounds fantastic, but the economic fall-out of Covid-19 is starting to gather momentum and price growth will soon start to fade."
Prices rose 0.9% month-on-month, after taking account of seasonal factors.
Most regions saw a pickup in house price growth rates in Q3 compared with Q2, with prices in all areas higher than a year ago.
The South West was the strongest performing region, with annual price growth rising from 2.3% to 5.5%. For the first time since 2017, house price growth in southern England exceeded that in northern England.
Annual house price growth in London continued to edge higher, with prices up 4.4% in Q3. Average prices in the capital hit a record high of £480,857 and are now 57% above their 2007 levels (compared to 21% for the UK as a whole).
Northern Ireland was the weakest performing region, with prices up 1.5% year-on-year. Average prices in the province are still 36% below their 2007 peak.
Scotland was one of the few areas to see a slowing in the annual rate of price growth, to 2% in Q3, compared to 4.0% in Q2. Meanwhile, Wales saw annual growth accelerate to 3.8%, from 1.0% in Q2.
Robert Gardner, Nationwide's chief economist, said: “UK house prices increased by 0.9% month-on-month in September, after taking account of seasonal effects, following a 2.0% rise in August. As a result, there was a further pick up in annual house price growth from 3.7% in August to 5.0% in September - the highest level since September 2016.
“Housing market activity has recovered strongly in recent months. Mortgage approvals for house purchase rose from c66,000 in July to almost 85,000 in August - the highest since 2007, well above the monthly average of 66,000 prevailing in 2019.
“The rebound reflects a number of factors. Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. The stamp duty holiday is adding to momentum by bringing purchases forward. Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown."
Andrew Montlake, managing director at Coreco, commented: “A 5% annual rise in values sounds fantastic, but the economic fall-out of Covid-19 is starting to gather momentum and price growth will soon start to fade.
"It may not have landed on the nation's doormat yet, but there's a whole world of economic pain in the post.
"While first time buyers are struggling as lenders get ever stricter at higher LTVs, the irony is that there is still a decent number of transactions for now, especially among landlords and second and holiday home buyers.
"A lot of people have decent equity and remain in secure jobs and we expect this demographic to maintain a certain level of transactions during the next 12 months as people move out of cities in search of bigger houses and more outdoor space.
"The countryside is the new city, rural the new urban.
“Demand is still strong given the great lull of lockdown and the stamp duty holiday, but unemployment is rising by the day and the economic outlook is highly uncertain.
“As 2020 draws to a close, price growth is likely to slow as the true impact of Covid-19 on the economy becomes apparent."
Anna Clare Harper, CEO of asset manager SPI Capital, added: "Annual house price growth of 5% reflects the release of pent-up demand and supply, and the impact of the temporary stamp duty holiday. Many in the property industry feel this ‘mini boom’ will be short lived, given economic circumstances and forecasts.
"However, property both follows and affects economic confidence, and the ‘fundamental’ drivers of housing demand are strong in an environment of low interest rates, reduced rates of new buildings coming onto the market and limited existing stock.
"It is hard to predict where the different regions will go next. For example, average prices in London have reached a record high of £480,857, 57% above their 2007 peak. Where next? In truth, there is much variation within London, so a measured approach is needed as we move into the fourth quarter of the year. Investors and home buyers must remember that even cheap borrowing needs to be paid back: future capital growth is a bonus, not a guarantee."
