House prices increased by 0.8% in July taking annual house price growth to 5.9% the latest figures from Nationwide Building Society claim.
The lender says the rate of growth is more than double that of this time last year when prices were increasing at an annual rate of only 2.6%.
The price of a typical house in the UK is now £167,733, which is £9,385 more than at the same time last year, it adds.
Demand in the housing market remains fairly buoyant which, Nationwide says, will help to support prices, at least in the short term.
House purchase approvals picked up to 120,000 in June to equal the peak at the turn of the year while indicators of demand early in the house purchase process have also been fairly positive.
And although house prices have been increasing more quickly than earnings for some time and fixed rate mortgage rates have been increasing since mid-April, leading to affordability problems to persist, demand has not been affected as much as may have been expected.
Nationwide says eventually affordability will become such a problem potential buyers will opt to rent instead meaning the pressure of demand for houses on house prices will ease. The fear then is that owner-occupiers will be replaced by prospective landlords and so demand for properties will be fuelled by landlords who in turn will be responding to tenant demands.
Fionnuala Earley, Nationwide's group economist, says overall the housing market remains stable.
She says: “In spite of rising fixed rate mortgage costs, affordability has not bitten as sharply as we had expected which suggests that buyers are still able to overcome traditional lending constraints. This could be as a result of loosening credit criteria, but also the ability for parents to release their own housing equity to help their children or act as guarantors. Furthermore additional demand for homes has increased tenant demand and landlords’ incentives to invest. Increased housing equity, more competition and more sophisticated risk assessment techniques have helped both landlords and owner-occupiers overcome some of the traditional affordability barriers.”
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