The average UK house price hit a fresh record in April but growth is set to slow this year as inflation and interest rates rise.
The Halifax said house prices rose 1.1% in April compared with March.
While it said prices had grown for 10 months in a row – the longest run since 2016 – it said “the headwinds facing the wider economy cannot be ignored”.
Hikes in the cost of living and higher interest rates will squeeze household budgets, the mortgage lender predicted.
The Halifax, which is part of Lloyds Banking Group, said that house prices had risen by 10.8% in a year, taking the average value to £286,079.
On Thursday, the Bank of England warned of an economic downturn as it raised interest rates to the highest level in 13 years.
Home owners on fixed-rate mortgages have been cushioned from rate rises so far, the Halifax said.
But Russell Galley, managing director at the Halifax, said the house price to income ratio was already at its highest ever level.
“With interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year,” he added.
In the short-term, property sales and purchases and mortgage approvals are still above pre-pandemic levels, and the Halifax expects the market to remain buoyant for now.
House prices are being driven up because there are more people looking to buy than there are properties for sale, it said.
The biggest demand is for larger, family homes, rather than smaller properties such as flats.
Over the past year, prices for detached and semi-detached properties have risen by over 12%, compared to just 7.1% for flats, according to the Halifax figures.
And the net cash increase for detached properties, at just under £50,000 over the past year, is nearly five times more than for flats.
The price of the average house in London reached £537,896 – a new record for the city.
Looking ahead Martin Beck, chief economic adviser to the EY Item Club, said: “The squeeze on real incomes from high inflation means fewer people will be able to afford to borrow the necessary amount they need to buy at higher mortgage rates.”
He said cost of living pressures weigh heaviest on low-income households, who disproportionately rent, than on the better-off, who primarily own or in the market to buy.
Those with incomes high enough to be in a position to buy a property are more likely to have accumulated unplanned savings during the pandemic to put towards a deposit, Mr Beck said.
The dominance of fixed-rate mortgages means it will take time for higher mortgage rates to affect the finances of homeowners, he added.