On the outside looking in: Many buyers are put off by higher prices

This is slightly up on August's rise of 0.1% - the weakest in three years.

Annual house price inflation fell to 17.8% in September, compared with 18.9% in August, the Nationwide said.

The International Monetary Fund (IMF) has identified the biggest potential threat to the UK economy as "an abrupt adjustment" in the housing market.

"Prices still appear higher than can be explained by fundamentals", the IMF said in its twice-yearly World Economic Outlook report, released on Wednesday.

The latest monthly figures are fresh evidence that the UK's housing market is cooling following the impact of five interest rate rises since November.

Wary buyers

Several recent housing market surveys have shown the pace of price rises slowing down, and last month the Halifax survey recorded its first monthly decline since August 2002.

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Buyers appear to be becoming scarcer, and more cautious as people are waiting to see if the slowdown is real and sustained.

The Nationwide highlighted the Bank of England figures, which showed that about 29,000 fewer houses were sold in August than in Spring 2004.

"Activity is set to remain at lower levels over coming months as home purchasers continue to adopt a cautious approach," said Nationwide chief economist Alex Bannister.

'No sign of a crash'

"However, activity is still slightly higher than during much of the 1990s and in our view remains consistent with further modest house price growth," Mr Bannister said.

The report also found that buyers who want to 'trade up', or move up the property ladder, faced the toughest conditions for 10 years.

The average price of a house is now �153,727, the Nationwide survey showed.

The regional inflation picture remained "broadly unchanged" in the July-to-September period, compared to a year-ago.

Annual rises in the third quarter Wales 34% North 30% North West 28% Yorks & Humberside 26% Scotland 24% East Midlands 20% West Midlands 19% South West 18% East Anglia 16% N Ireland 16% Outer South East 14% London 11% Outer Metropolitan 10%

Wales experienced the steepest rise - up 34% year-on-year - followed by the North at 30% and North West England at 28%, while the lowest increases were in London, with 11%, and the surrounding metropolitan area, where it was 10%.

Nationwide held its 2004 forecast steady at 15% annual inflation in house prices.