The average U.S. house price jumped 8.5 percent from a year ago in October, setting the stage for mortgage giants Fannie Mae and Freddie Mac to raise the limit on mortgages they can buy, a Federal Housing Finance Board (search) survey showed on Tuesday.

The average house price rose to $264,540 last month from $243,756 in the same month a year ago, the FHFB said in a statement.

The increase paves the way for Fannie Mae (FNM) and Freddie Mac (FRE) — government-sponsored enterprises that buy mortgages from lenders and hold them or repackage them as securities for investors — to buy loans up to about $359,500. Their current limit is $333,700.

The increase would mean that home buyers could borrow up to that amount, known as the conforming loan limit, at interest rates of about a half of a percentage point lower than for bigger mortgages, referred to as jumbo loans.

Assuming a 20 percent down payment, buyers of houses costing up to about $450,000 would qualify for the lower-cost loans.

The enterprises may raise their loan purchase ceiling once a year by the rate of change in the FHFB's October survey.

Because the companies erred in calculating the 2004 limit, the new conforming loan limit will be increased from $331,400, the FHFB said.

Fannie Mae and Freddie Mac's financial regulator, the Office of Federal Housing Enterprise Oversight (search), is due to announce the conforming loan limit change later Tuesday.