UK house prices returned to muted growth in July – but the market remains “soft” amid an uncertain economic and geopolitical backdrop, according to new figures.

Nationwide Building Society said the average house price edged 0.1% higher month on month to £277,542 in July, which follows two months of falling or stagnant prices.

On an annual basis, price growth slowed sharply to 1.8%, down from 2.2% in June.

It comes after lenders have been hiking their mortgage rates in recent weeks, despite the base rate being held at 3.75%.

The Bank of England kept rates unchanged again on Thursday, but cautioned inflation was set to rise by the end of the year due to the Iran war and signalled it stood ready to hike if the conflict and its effects on prices was prolonged.

Robert Gardner, Nationwide’s chief economist, said: “Market activity and house prices have remained soft in recent months, in part reflecting the uncertain economic backdrop.

“Geopolitical tensions remain high, with the conflict between Iran and the US again exerting upward pressure on energy prices and market interest rates in recent weeks.

“Financial market expectations for the future path of Bank Rate have been volatile, reflecting shifting views about the inflationary implications of events at home and abroad.”

But mortgage lending has remained resilient in the face of rising rates for homeowners.

Bank of England figures earlier this week showed net borrowing of mortgage debt jumped to £7.7 billion in June, compared with £3.3 billion in the previous month.

Meanwhile, the number of mortgage approvals for home purchases also rose to 58,200 for the month, compared with 56,600 in May.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “We think the latest reading from the Nationwide index suggests that underlying demand is holding firm.”

But he warned speculation over incoming policy changes under the new Prime Minister may hold the property market back.

He said: “Rumours of higher property taxes being introduced by new Prime Minister Andy Burnham have begun to circulate.

“We have little sense as to how much truth is behind these stories, but Mr Burnham has made little secret of his desire to oversee a boom in council homebuilding, so further property taxes remain a distinct possibility and would likely exert a larger drag on activity in expensive parts of the market.”

Nationwide’s latest report on the housing market also revealed details on “churn”, calculating the average time in a home is 14 years.

But it varies significantly depending on ownership versus rental, with those who own a home outright staying in a property for 24 years on average, and those in the private rented sector staying five years, according to Nationwide’s analysis of English Housing Survey statistics.

Mr Gardner said: “Those in the private rented sector tend to have the shortest time in a property.

“There is also a heavy skew… with around half of those in the private rented sector being resident in their current property for two years or less.”

HM Revenues & Customs figs also out on Friday showed a 2% rise in residential property transactions year-on-year in June, to 98,700.

On a monthly basis, the rise was less then 1%, up from 98,460 in May.

Figures for April and May were depressed after transactions were brought forward into March ahead of the stamp duty changes, HMRC said.