U.K. house prices posted the biggest gains in two years in September as confidence in the market improved, Hometrack Ltd. said.

The average cost of a home in England and Wales rose 0.2% from August to $248,000, the London property-research company said Monday. The increase, the biggest since June 2007, left house prices 5.6% lower than a year earlier, the smallest annual decline in a year.

The report adds to evidence that the housing market may be starting to level off after the credit squeeze ended a decade-long boom. There still is a risk that the recovery from recession will falter as unemployment continues to rise, Bank of England policymaker Kate Barker said last week.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.