House prices have grown fastest in years, says Halifax

2.6% year-on-year growth to average £166,898 marks biggest annual uplift since September 2010

House prices recorded their strongest annual increase for more than two years in May in further signs that the market is gathering momentum, Halifax reported today.

Prices rose by 2.6 per cent year-on-year to £166,898 on average, marking the biggest annual uplift since September 2010.

On a month-on-month basis, prices increased by 0.4 per cent, which was smaller than the previous month but the fourth month in a row of rises.

Lenders, estate agents, surveyors and property websites have been reporting signs of confidence returning to the market in recent months, following the launch of several Government schemes to make it easier for people to get a mortgage.

The number of mortgages on the market has sharply increased since the Government launched its Funding for Lending scheme last August, which gives lenders access to cheap finance to help borrowers. Lenders have also been offering some of their lowest ever mortgage rates.

The Government also recently unveiled its flagship Help to Buy scheme, which is specifically aimed at giving people with low deposits a helping hand and will be fully fired into action next year. However, concerns have been raised that the scheme could lead to a "housing bubble" by artificially propping up prices.

Halifax said that HM Revenue and Customs figures showed there has been a "modest" pick-up in home sales recently, although sales volumes still remain low by historical standards.

Martin Ellis, housing economist at Halifax, said: "Despite these recent signs of improvement in the housing market, the subdued economic background and the accompanying weak income growth continue to be a significant constraint on housing demand and activity."

The latest figures were released as the Home Builders Federation (HBF) reported today that the Help to Buy scheme has already got off to a "flying start" in its initial stages.

Around 4,000 people have reserved a new home in the two months since the scheme was launched and the HBF said interest in the initiative has been "huge".

The first part of the Help to Buy initiative, which is already under way, involves the Government helping buyers of new-build homes to get a mortgage with a deposit as low as 5 per cent by granting an equity loan of up to 20 per cent of the property's value.

The equity loan can be repaid at any time or when the home is sold on and this part of Help to Buy is expected to deliver 74,000 sales over its three-year life.

The second part of Help to Buy, which starts next January, is aimed at stimulating the whole housing market.

It will involve the Government making guarantees to lenders which will be able to support £130 billion-worth of low-deposit mortgages.

The guarantee scheme, which will also run for three years, is expected to generate around 190,000 sales per year - the equivalent of one fifth of housing transactions made in the UK last year.

Howard Archer, chief European and UK economist for IHS Global Insight, said that while home-owners' mortgage interest payments have edged downwards, house prices are still less affordable by long-term standards when compared with earnings.

Halifax's latest report showed that house prices cost just over four-and-a-half times the typical full-time male wage - higher than the longer-term average, which is closer to four times the average income.