HOUSE prices rose by 1.3 per cent during last month as activity in the market showed signs of picking up again.

Britain's biggest mortgage lender Halifax said the increase, which was in line with the previous month's rise, showed the market was still strong.

The group said there were also signs that the number of properties being bought and sold was increasing, as confidence was boosted by the end of the war in Iraq, coupled with the lowest interest rates since the 1950s and the highest level of employment on record.

The group said activity had also increased following a lull between February and May, with Inland Revenue figures showing the number of transactions in England and Wales had bounced back from a seasonally adjusted 103,000 in June, to 115,000 in July.

Estate agents had also noted an improvement in confidence, with an increase in the number of inquiries from potential buyers, greater competition for properties and signs that buy-to-let investors were returning to the market.

A Halifax spokesman said: "The biggest impact on house prices will be first-time buyers. They are still the most crucial part of the whole jigsaw and we need to see that picking up.

"The shortage of first-time buyers as prices become less affordable will have an impact next year on the housing market and that will slow it down."