UK home prices
Birds take to the early morning sky as they fly over a row of estate agent signs in London. (Reuters)

House prices in the UK rose further in August, bucking the traditional seasonal slowdown in the month, on the back of robust demand for a limited supply.

Property tracking website Hometrack said that all the key housing market indicators in August show underlying housing market conditions are at levels not seen for 6 years, as credit easing initiatives such as Help to Buy and Funding for Lending make consumer mortgages more accessible.

Home prices increased by 0.4% in August from the previous month, when they rose by 0.3%. On a year-on-year basis, prices increased by 1.8% in August, the highest annualised growth rate since July 2010.

Regional Trends

House prices grew across a third of the country in August with London and the South East accounting for two thirds of the areas registering price rises, according to Hometrack.

In London, home prices rose by 0.9% in August, while lifting 0.5% in the South East. The North East bucked the general trend with 0.1% decline in house prices. Prices were stable in Yorks and Humberside.

"The strongest market conditions are in London and the South East on the back of an imbalance between supply and demand," said Richard Donnell Director of Research at Hometrack.

"Across the rest of the market house prices are increasing more slowly as supply keeps pace with rising demand. In three regions, however, prices remain broadly static and in the North East prices drifted lower by 0.1% in August."

Supply-Demand Mismatch

Demand for houses, indicated by the number of new buyers registering with agents, rose 1.1% in August. The unusual improvement in demand during the month was on the back of better market sentiment. Over the last three years, demand declined during the month of August.

"It is evidence of the general improvement in buyer confidence that has been developing over the last few months, supported by low mortgage rates and an improving economic backdrop. A steady return of pent up demand after 6 years of suppressed housing market activity also explains some of the continued expansion in demand," Donnell said.

Meanwhile, supply rose 0.8% in August from the previous month, when it grew by 2.4%. The lower supply in comparison with demand is generating an upward pressure on house prices, according to Hometrack, which risks the inflation of a new housing bubble.

"The balance between supply and demand leads underlying house price changes by 3 months," Hometrack said.

The balance also suggests continued price rises, according to the website.

"Overall we expect demand to continue to expand over the remainder of the year so long as the outlook for the economy and mortgage rates remains unchanged. A lack of housing for sale is set to remain a feature of the market and this will keep an upward pressure on prices in the near term," it said.

Nationwide earlier reported a home price increase at a "fairly brisk pace" in August, helped by the Help to Buy and Funding for Lending schemes. Nationwide's August House Price Index lifted 0.6% on the month and 3.5% on the year.

The building society also warned of the insufficient housing supply to meet rising demand, which is expected to result in a bubble in the property sector.