What on earth is happening in the housing market? Of the many economic puzzles thrown up by the recession, this is the most mind-boggling – for homeowners, first-time buyers and the wider economy. The conundrum is this. Unemployment is close to 2.5 million and will go higher. Pay rises are rare. People fear debt. The credit crunch has hardly gone away, meaning that mortgage finance, especially for first-time buyers with slim deposits, and movers with little equity, is expensive, if available at all. Mortgage approvals may be up on last year, but the new money going into the market isn’t sufficient to secure rising prices. Values are steep by long-term historical standards in relation to earnings, especially in London.

So prices ought to be tanking. And yet … the Royal Institution of Chartered Surveyors sees a gathering wave of optimism among surveyors watching their local property scenes, and the Nationwide has just reported rising prices for the sixth month in a row. Prices are stabilising, even rising – 0.4 per cent during October, up 2 per cent on last year (though prices are still about a fifth off their peaks).

Why? And can it last?

Recent house price surveys have homeowners some much-needed cheer – yet a major economic survey this week claimed that the recovery in the UK property market may be five years off. Find out whether your home is set to retain its value in the months and years to come Homeowners received conflicting signals about the health of the housing market this week. Official figures from the Department of Communities and Local Government (DCLG) show that house prices rose by 1.4% in September – although they remain 8.3% lower than in July 2008.

At the same time the Royal Institution of Chartered Surveyors (RICS) reported that more estate agents are saying that prices are now rising rather than falling for the first time since the start of the credit crunch.

Both reports provide evidence that the property market may have finally turned. Other indicators include a modest increase in the number of mortgage products coming on to the market and an increase in the number of mortgages being granted.

Figures from industry body the Council of Mortgage Lenders (CML) show that the number of loans approved in July was 24% higher than in June and 19% higher than this time last year.

Prices fell by an average of £5,102 in the past month, however with August being a seasonally slow month should this be a concern? A busiest ever month at Rightmove suggests there is strong demand for housing, so what’s preventing a more steady housing recovery?

According to Rightmove’s commercial director Miles Shipside access to mortgages is playing a key factor: “After several months of activity and prices revving upwards from last winter’s low point, both will start to hit the limiter without more mortgage finance. In spite of pent up demand, the market and pricing is boxed in by restrictive lending criteria put in place to ration mortgages given the lack of funds available to lenders”.

Mortgage Advisors are predicting a significant rise in the mortgage business through intermediaries in the 3rd quarter of 2009, according to Paragon’s Financial Advisor Confidence Tracking Index.

The predicted rise of 8% on the previous quarter would mean an increase in mortgage business for the second quarter running and is certainly a good improvement from the negative results of 2008.

58% of respondents predicted the 8% rise with nearly a third (31%) expecting this to be at least 10%. Only 7% of brokers expect levels of business to fall – a most favourable comparison when compared to Law2Law’s March 2009 survey (19% expected levels to fall) and December 2008 was worse with 39% of brokers expecting the decline.

It seems the green shoots of recovery stories of new mortgages and new lending are indeed factual – a welcome change from the doom and gloom of recent months.

By Samantha Jones, Law2Law.

Mortgage approvals by the main high-street banks rose by an annual rate of almost 16 per cent last month, touching a 13-month high, according to the British Bankers’ Association.

The BBA said a total of 31,162 loans were approved for house purchases, suggesting a more stable outlook for the depressed housing market. The average value of the loans, although below the levels seen last year, has also risen steadily over the last six months.

The market remains subdued, however. Despite rising approvals, net new mortgage lending grew by £2.3bn – the weakest monthly rate of growth since early 2001. The figure, which tempers the picture painted by the data on approvals, compares with a £2.5bn rise in April, and an average rise of £3.2bn over the previous six months. Gross mortgage lending, at £7.7bn, dropped to its lowest level since February 2001.