No bubble says Nationwide, as UK housing hits 5-year high

U.K. house prices surged to a five-year high in July, according to the U.K.'s biggest building society, but the author of the new report told CNBC that talk of a housing bubble are overplayed and price moves are only "modest".

Nationwide said on Friday that house prices in the U.K. were higher by 0.8 percent in July from June and 3.9 percent higher than in July 2012. This marks the strongest annual growth three years. A typical home is now worth £170,825 ($260,098), the highest since June 2008 when prices were at £172,415.

"Signs of a modest improvement in wider economic conditions and further modest gains in employment are likely to be lifting buyer sentiment," Robert Gardner, Nationwide's chief economist said in a press release.

(Read More: UK housing recovery spurs 'bubble' warnings)

House prices are currently around 12 percent higher than the lows seen in the midst of the financial crisis, though they are still around 10 percent below the all-time highs recorded in late 2007, he said.

Speaking to CNBC, Gardner was adamant that recent rises were still fairly "modest" and fears of a housing bubble were overstated. Prices were not "running away". However, housing is still elevated compared to people's incomes, he said, but added that the cost of servicing mortgages is in line with long-term averages due to low interest rates, so lending isn't particularly stretched.

New governmental policies have made a difference and increased demand by improving the availability and a reduction in the cost of credit, he said. At the same time, the supply side of the market remains fairly constrained, according to Gardner, adding that building activity is still subdued. Housing completions in England were down 8 percent year-on-year in the first quarter.

The Bank of England's current quantitative easing (QE) program has run alongside a Funding for Lending Scheme, providing state-backed assistance for first-time buyers. Additionally, U.K. Chancellor of the Exchequer George Osborne announced in his latest budget a £5.4 billion "Help to Buy" mortgage scheme aimed at helping citizens with a limited deposit to purchase property.

(Read More: UK house prices leap to record high)

Critics of the latter measure have included both The International Monetary Fund and former Bank of England Governor Mervyn King who called it "too close for comfort" to the U.S. mortgage guarantee schemes that some blame for triggering the financial crisis.

David Bloom, global head of foreign exchange strategy at HSBC believes there may be a problem with over-leveraging in the market, but thinks the banks are much more diligent and cautious than they have previously been in housing upturns.

"There's a bit of a recovery going on and don't knock it," he told CNBC Wednesday.

(Read More: UK House Prices Gallop Higher in June)

"The big difference this time round is that most recessions in the U.K have inflation and when they have inflation the central banks are forced to raise interest rates and people lose their jobs. What is happening in this downturn is that unemployment remains low and the payment and debt is very cheap and that is what saved the U.K. economy."

By's Matt Clinch. Follow him on Twitter @mattclinch81