The UK’s average property is now worth £167,984. Halifax attributed the increase in prices to increased demand driven by lower mortgage rates resulting from The Funding for Lending Scheme (FLS).

The 3.7% increase was the biggest annual rise in house prices the UK has experienced in three years.

Halifax housing economist Martin Ellis said that the rises were down to a combination of reasons but that lack of supply and cheap mortgage finance were key reasons for the rise.

“Improved confidence in both the housing market and the economy, combined with a shortage of properties available for sale, appear to be pushing up house prices,” he said.

“The Funding for Lending Scheme is also likely to be boosting the market by helping to reduce mortgage rates.

“There are also early indications that the Help to Buy equity loan scheme may be stimulating demand. Despite these signs of improvement in the market, the still subdued economic background and weak income growth are expected to remain significant constraints on housing demand and activity during the second half of 2013.

“Activity has also improved in recent months. Both home sales and mortgage approvals for house purchase – a leading indicator of sales – increased in May.”