House prices in the UK reached a two-year high in August and the recent interest rate cut has increased confidence among homebuyers, the UK’s largest mortgage lender has said.

Halifax said prices last month were up 4.3% compared to last year, taking the average cost of a UK property to £292,505.

The lender, which is owned by Lloyds Banking Group, said that buyers have been boosted after the Bank of England reduced interest rates at the beginning of August, in the first cut for four years.

House prices are now “just shy” of the record reached in June 2022 when they hit £293,507.

But Halifax’s head of mortgages Amanda Bryden, said: “While this is welcome news for existing homeowners, affordability remains a significant challenge for many potential buyers still adjusting to higher mortgage costs.”

Despite a cut in UK interest rates, at 5% they remain at their highest since 2008 when the economy was on the cusp of the global financial crisis and some major banks faced collapse.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said that while home loan deals improved following the rate cut – with the average two-year fixed rate mortgage falling from 5.77% to 5.54% – there “wasn’t a seismic shift”.

The Bank of England is forecast to cut interest rates again this year though it is not clear when. The Bank’s next meeting is on Thursday, 19 September.

Ms Bryden said: “With market activity picking up and the possibility of further interest rate reductions to come, we expect house prices to continue their modest growth through the remainder of this year.”

House prices rose by 0.3% in August, the Halifax said, compared to 0.9% in July.

Annual growth in prices has hit a near two-year high in each of the last two months, its data suggests.

But the mortgage lender said this was primarily the result of the weakness of property prices a year ago, rather than particular strength now.

Potential first-time buyers would welcome a continued period without runaway prices, as they closely watch deposit requirements and mortgage rates.

It said that Northern Ireland continues to experience strong house price growth. In August, it rose by 9.8% compared to last year and the average price of a home is now £201,043.

In England, the north west showed the sharpest rise in house prices, up 4% over the last year to sit £232,917.

Halifax’s figures only take into account buyers with mortgages and do not include those who purchase homes with cash or buy-to-let deals. Cash buyers account for around a third of housing sales.

Rival Nationwide also reported monthly and annual growth in property prices edging up in August.