The price of the average home has surged by 6 per cent in the past three months - the strongest rise for 10 years - the UK's largest mortgage lender said today.
The latest monthly index from Halifax bank showed prices rose 2.2 per cent in July, the fastest rate for more than six years.
The average home now costs pounds 78,443 or 8.2 per cent up on a year ago, the largest annual increase since December 1996.
It said house prices were rising most quickly in southern England and particularly in Greater London, where a shortage of supply of houses for sale has driven up prices.
Halifax said historically low mortgage levels and the marked improvement in the economy had boosted the market but insisted it was not heading for a repeat of the 1980s boom and bust.
"Strengthening economic conditions and the favourable housing affordability position should continue to underpin a healthy housing market over the remainder of 1999," it said.
"But we do not foresee a return to a 1980s-style boom when the market was propelled by a powerful combination of positive factors." It said prices were rising at a much slower rate than the Eighties which saw values doubling between 1985 and 1988 with sustained monthly rises of 3 per cent.
Halifax also pointed out that turnover was low with total transactions in the second quarter of this year unchanged from the same period in 1997.
Last month Nationwide, the largest building society, doubled its inflation forecast for 1999 to 8 per cent after recording surges of up to 27 per cent in parts of London.
With mortgage rates at 30-year lows, the 6 per cent house price rise in three months is a robust pace, but still falls short of the 3.0 percent a month average notched up during the first nine months of 1988.Reuse content