UK house prices
Halifax said the average UK house price rose by just 0.1% over the month in AugustReuters

The constrained supply of housing in the UK is beginning to improve as the economy recovers.

Residential construction work is picking up and more sellers have been tempted onto the market by higher house prices.

Halifax said in its monthly index that the average UK house price was £186,270 in August after rising just 0.1% from July amid the seasonal summer slowdown. Annually the rise was 9.7%.

House prices have risen sharply recently off the back of higher mortgage demand – thanks to low interest rates and the healing economy – which is running far ahead of supply.

"There are some signs of an improvement in housing supply, both in terms of more second-hand properties coming onto the market and increased numbers of new homes," Martin Ellis, Halifax's housing economist, said.

"These trends, if sustained, should help to improve the balance between supply and demand, contributing to an easing in the pace of house price growth."

Assuming a 10% deposit, a first time buyer of a property at the average UK price could secure a 25 year mortgage with an interest rate of 4.54%, fixed for two years, meaning a monthly repayment cost of £932.21.

Source: Halifax mortgage calculator

Figures from the Department of Communities and Local Government (DCLG) in the three months to March 2014, there were 36,450 housing starts in England and Wales, a 33% increase on the same period a year before.

And the economy is set to grow by more than 3% in 2014 as a whole, according to a forecast from the Bank of England, making it the fastest growing in the Western world.

But mortgage demand will be held back by regulators who have tightened the market with stricter rules for banks and a cap on their high loan-to-income lending.

Moreover, the Bank of England is expected to raise interest rates in early 2015 as the economic recovery solidifies.

The base rate is currently at 0.5%, its all-time-low, where it has been since 2009 to keep banks lending while the economy slumped.

When the base rate rises, so will mortgage costs – helping to keep a lid on housing demand.

Despite these limits to demand, economists expect it will still race ahead of housing supply and keep prices rising over the coming years.