House prices are still rising in the UK, albeit slowly.

Building Society Nationwide has announced that UK house prices are within 10% of their October 2007 peak after a 0.5% rise in May.

Last month’s increase means that prices have risen 12.2% since February 2009 and are just 9.5% below the 2007 high.

In Nationwide’s latest monthly report on the housing market, the average price rose to £169,162 in May, from £167,802 in April, and annual house price inflation dropped marginally from 10.5% to 9.8%.

It suggests that the steady rise in property prices over the past year has been fuelled by record low interest rates and limited supply.

Martin Gahbauer, Nationwide’s Chief Economist, said: “Housing market conditions remain characterised by thin transaction volumes and a relative scarcity of properties for sale, despite a slow return of more sellers in recent months. The current supply-demand balance on the market is still consistent with relatively stable to modestly upward trending prices.”

He also commented that the future outlook for the market could depend on the Government’s plans to increase capital gains tax (CGT) from 18% to 40%, or even 50%, for top-rate tax payers.

“If there is a significant time lag between the announcement of the increase and its actual implementation, then second home owners and buy-to-let landlords may decide to sell in advance.”

“Such a development could lead the supply-demand balance to shift more in favour of buyers and relieve the current upward pressure on house prices,” Mr Gahbauer added.

Other house price surveys are in line with the Nationwide figures – Halifax has recently put annual house price inflation at nearly 7%, the Communities & Local Government Department calculated it at 9.7%, while the Land Registry has put it at 8.5% for England and Wales.

The recent abolition of the requirement for house sellers to provide a home information pack (Hip) to prospective buyers may also affect the market.

The figures also come a day after Standard & Poor’s, the ratings agency, reported that despite declines since the bursting of the bubble in 2007, European house prices are still too high and may fall again later this year or in 2011.

It said the outlook for UK house prices is unclear, with some measures indicating that the market is undervalued and some that it is overvalued.

“This could mean another correction is in the offing…Price contractions associated with the current downturn in the UK market are probably over for the most part…but the pace of house price growth is likely to slow markedly in the coming quarters,” Standard & Poor’s said.