Hopes for a sustained recovery in the housing market have suffered a setback after one of the country's top mortgage lenders gave warning that price growth slowed sharply in April and annual property price inflation is now back below 5 per cent.

As it warned buyers and sellers to expect further movements either way over the coming months, the Nationwide building society reported that house prices grew by just 0.1 per cent in April - to take the average property price to £163,573.

This followed price growth in March of 1.1 per cent, when the average price stood at £162,083, according to the Nationwide, in a healthy start to the year reported by most mortgage lenders that triggered fresh hopes of a strong market recovery amid a renewed bout of optimism among British housebuyers.

But price growth at April's level was last seen in August and September last year, when concerns were still present that the housing market was heading for a sharp correction.

The Bank of England cut the cost of borrowing by 0.25 per cent last August in a move that was seen as having a strongly positive knock-on effect on market confidence.

The Nationwide said that, in cash terms, the average property price has increased by £7,500 over the last 12 months, equivalent to just over £20 a day.

Fionnuala Earley, the Nationwide's group economist, blamed the soaring price of petrol to £1 a litre and rocketing domestic fuel bills for putting the dampeners on consumer confidence, although she cautioned it would be a mistake to set too much store by just one month's set of numbers.

"While the number of house purchace approvals fell back sharply in February, from 121,000 to 115,000, this remains a buoyant level of activity, well above the ten-year average of about 100,000 a month," Ms Earley said.

"Looking forward, we continue to expect some month to month volatility in the house price numbers as the market settles down after the unseasonably strong winter months and adjusts to the economic conditions on the horizon.

"While we do not expect any early move in interest rates that would stimulate or dampen the market, there are other economic factors that will affect it through their impact on disposable income and confidence," she added, referring to consumer worries about household bills and concerns about high borrowing levels.

Economists welcomed the cooling of the market, with the inflationary effect that higher prices have on the wider economic environment and the level of interest rates set by the Bank of England.

Howard Archer, the chief UK economist at Global Insight, said: "The key question going forward is will house prices settle down into an extended period of essentially modest increases, or will further significant increases occur over the coming months?"

Mr Archer said he was of the view that house prices will remain "relatively muted" for some months to come, particularly with the constraints on entry faced by struggling first-time buyers.

"Significantly, affordability has already been pressurised by the recent move back up in house prices, and it will be adversely affected over the coming months by moderate earnings growth, markedly increased utility bills, elevated petrol prices and higher council tax," Mr Archer said.

"Furthermore, growing pension concerns may make an increasing number of people uncomfortable about stretching themselves in buying a house. Consequently, we suspect that buyer activity will be increasingly squeezed if house prices move up significantly on an extended basis, and that this will cap prices.

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