Builders work on a new house at a Bellway housing development in Liverpool, Britain, August 23, 2023. REUTERS/Phil Noble

LONDON (Reuters) -British house prices rose slightly faster than expected last month, increasing 0.5% in September after a 0.1% drop in August, major mortgage lender Nationwide Building Society said on Wednesday.

House prices in September were 2.2% higher than a year earlier, up from an annual increase of 2.1% in August and well below the rates of both average wage growth and consumer price inflation.

Economists polled by Reuters had on average forecast a 0.2% monthly rise in house prices and a 1.8% annual increase.

Nationwide said the annual pace of house price growth and transaction volumes appeared to have stabilised after rising faster earlier this year as buyers sought to take advantage of the final months of a tax break on some home purchases.

"Unemployment is low, earnings are rising at a healthy pace, household balance sheets are strong and borrowing costs are likely to moderate a little further," Nationwide Chief Economist Robert Gardner said.

House prices in the third quarter of this year rose fastest in Northern Ireland and northern England - up 9.6% and 5.1% respectively compared with a year earlier - while they rose just 0.6% in London and 0.3% elsewhere in southeast England.

(Reporting by David Milliken; editing by Sarah Young)