House prices rose by 1.3 per cent during August as the market showed signs of picking up again.

Britain's biggest mortgage lender Halifax said the increase, which was in line with the previous month's rise, showed the market was still strong.

There were also signs the number of properties being bought and sold was increasing as confidence was boosted by the Iraq war ending, the lowest interest rates since the Fifties and the highest level of employment on record.

The figures were in line with those reported by Nationwide Building Society last week, which said property prices had risen 1.1 per cent during August, although annual house price inflation fell to 16.6 per cent.

Halifax said house prices had increased by an average of 1.1 per cent during the past three months, almost double the monthly average of 0.6 per cent during the past 20 years.

The annual rate of growth remained largely unchanged during August at 19.1 per cent, just 0.1 per cent lower than during the previous month, with the average house now costing £133,908.

The group said estate agents had noted an improvement in confidence with an increase in the number of inquiries from potential buyers, greater competition for properties and signs that buy-to-let investors were returning to the market.

But despite this, the bank, which is part of the HBOS group, still expects house price growth to slow over the rest of the year as first-time buyers outside southern England find it increasingly difficult to get on to the property ladder.

A Halifax spokesman said: "The biggest impact on house prices will be first-time buyers. They are still the most crucial part of the whole jigsaw and we need to see that picking up.

"The shortage of first-time buyers as prices become less affordable will have an impact next year on the housing market and that will slow it down."

The group expected to see a more even pace of house price growth across the regions during 2004.

Wednesday September 3, 2003