House prices are now less than 10 per cent below their 2007 peak, according to the Swindon-based Nationwide Building Society.

Prices have increased by 0.5 per cent month-on-month in May and the annual rate of house price inflation has dropped from 10.5 per cent to 9.8 per cent – but looking at the market generally, prices have gone up 12.2 per cent since the February 2009 trough.

The average price of a house is now £169,162.

Nationwide’s Chief Economist Martin Gahbauer 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.”

Mr Gahbauer said the forthcoming budget might have an effect on house pricing. “The coalition plans to increase the rate of capital gains tax charged on the disposal of non-business assets, potentially including second homes and buy-to-let investment properties,” he said.

“With regard to what the short-term impact will be on the housing market and house prices, the key question is around the timing and implementation of any CGT increase.

“If there is a time lag between the announcement of the increase and its actual implementation, then some second home owners and buy-to-let landlords may decide to sell in advance of the higher rate being introduced – it is difficult to know how many.

“The incentive to try to beat the higher tax rate is most pressing for those who have owned their properties for a relatively long period.”