PROPERTY prices continue to soar, with Nationwide today reporting a 2.5 per cent rise in July.

This marks an annual move up of 22 per cent putting an average price for a house in the month at £108,818.

Alex Bannister, group economist, for the Swindon-based building society, said: "While the prices of equities and goods on the high street both fell in the last month, property prices continued to rise strongly. July saw the price of an average UK property rise by a seasonally adjusted 2.5 per cent.

"Although slightly weaker than the 3.3 per cent increase in June, this is above the average increase seen during the past six months (2.1 per cent). Annual house price inflation has now reached 21 per cent, the highest since the second quarter of 1989.

"Despite the latest data, for June, showing mortgage lending and house sales declining sharply, it is far from clear that this is the beginning of a sustained downturn. Not only did June have significantly fewer working days than May because of the Jubilee celebrations, but the World Cup may also have interrupted home buying.

"Although affordability is increasingly stretched, demand remains strong driven largely by the favourable economic backdrop.

"In addition, buyers appear to believe that interest rates will remain lower than in the past and are willing to borrow more to finance property purchase given the current relative appeal of property over other investments.

"There is a risk that some households will overstretch themselves and we would urge both lenders and borrowers to maintain a prudent and cautious approach to home buying."

Two of the key assets that UK households possess continue to diverge in value, with property prices up by a seasonally adjusted 2.5 per cent in July, compared with around a 10 per cent fall in the FTSE 100 index.

Around a third of gross household wealth is tied up in equities whether directly (10 per cent) or in pension funds (23 per cent) compared with 48 per cent held in property.

The relative movements in asset prices have meant that this year gross household wealth has probably declined by five per cent.

However, had house prices not risen during this period the slump in wealth would have been closer to 10 per cent.

It is also likely that a majority of households track the value of their home more closely than that of their pension fund and so the impact on their current borrowing and spending decisions may not be too negative.