House prices are continuing to rise as demand grows ever stronger, according to the latest Halifax house price index.

The index shows that prices are continuing to rise due to a chronic shortage of properties, while at the same time more people are being encouraged to buy due to the economic recovery, earnings growth and low mortgage rates.

The average UK house price stood at £204, 674 in August – that’s 9% more than the August 2014 figure of £185,333.

August also saw the biggest monthly house price rise since May 2014, with prices up 2.7% on July’s figures, while home sales declined by 4% between June and July, but remained above 100,000 for the second consecutive month.

Prices in the three months from June to August were also up on the preceding three months – by 3%.

Halifax housing economist Martin Ellis said: “House prices in the three months to August were 3% higher than in the previous quarter. This measure of the underlying rate of house price increased from last month’s 2.5% but remained below June’s 3.3%.

“The underlying pace of house price growth is strong. The shortage of second hand properties for sale on the market is resulting in upward pressure on house prices. At the same time economic recovery, real earnings growth and very low mortgage rates are supporting housing demand.

“Strengthening demand and highly constrained supply are likely to mean that house price growth continues to be robust in the short term.”

The index also said buying was still cheaper than renting. The average monthly cost of buying a three-bedroom house in the UK is £666, according to the latest figures – £56 (or 8%) less than renting an equivalent property.

In addition, according to the latest RICS monthly report, available stock levels fell once again in the month of July to yet another record low. New instructions fell for the sixth consecutive month and for the 11th time in the past 12 months.