Residential property prices in the UK are continuing to rise with the latest house index showing a 1.1% rise in July, sparking talk of a tentative recovery despite tight lending conditions.

The latest figures from the Halifax mean that prices have increased for the second time in three months and the third rise in 2009.

The Halifax also said that prices in the three months to July compared to the previous three months, an indicator of the underlying trend, were 0.8% higher. This slight increase was the first rise on this quarterly basis since October 2007. 

Overall prices fell by 0.8% over the first seven months of 2009.  The average house price in July was £159,623 compared to £160,861 in December 2008. House prices in July were 12.1% lower on an annual basis.

'Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates,' said Martin Ellis, the Halifax's housing economist. 

'Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months,' he added.

Last week the nationwide building society also said prices had risen in July, with the underlying trend as measured by its own survey moving upwards at the fastest rate since February 2007.

However, both lenders are being very cautious and both are refusing to predict that prices will now keep on going up. They point out that lending is still tight and many properties that might have been put up for sale are being let to tenants instead. 

Also some property owners in financial difficulty are only avoiding repossession because the record low level of interest rates has dramatically reduced the burden of making their monthly mortgage epayments.

Experts warn that if the apparent revival of prices encourages more people to try to sell their homes, or interest rates rise, then the balance of supply and demand could tilt, leading to a renewed downturn in prices.

'There is a stark shortage of property on the market and this, above all, is driving the rebound we are seeing,' said David Smith of property consultancy Carter Jonas.