House prices increased by 8.6% year on year in May and a tight supply of homes for sale is likely to push property values up further in the coming months, Halifax has reported.
The average UK house price stood at £196,067 in May after edging down by 0.1% compared with the previous month. In April, prices had jumped by 1.6% month on month.
The annual 8.6% increase in house prices marks the strongest year-on-year growth seen in seven months.
Martin Ellis, a housing economist at Halifax, said that during 2015 so far, year-on-year house price growth has remained within a range of 8-9%. This compares with annual growth of more than 10% seen in summer 2014.
Mr Ellis said: "Housing supply remains extremely tight, with the stock of properties available for sale currently at its lowest level for many years.
"At the same time, ongoing economic recovery, increasing employment, real earnings growth and very low mortgage rates are all supporting housing demand. This combination has kept annual house price inflation well above earnings growth, although activity levels are subdued.
"The imbalance between supply and demand is likely to continue to push up house prices over the coming months. Looking further ahead, the increasing level of house prices in relation to earnings is expected to dampen house price growth."
On a quarterly basis, house prices between March and May were 2% higher than the preceding three months. This was lower than the 2.6% quarterly increase recorded in March.
Halifax said its housing market confidence tracker showed that the proportion of people who think the next 12 months will be a good time to buy increased in April. Bank of England figures also recently showed that the number of mortgage approvals jumped to a 14-month high in April.
The supply of homes on the market remains tight, with the Royal Institution of Chartered Surveyors (Rics) recently reporting that the stock of homes for sale has been falling.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "We believe that housing market activity is now on the up after slowing markedly during 2014 and we expect it to be firmer over the coming months."