House prices in the United Kingdom have grown at their fastest rate in more than 16 years on the back of low interest rates and a government tax discount, according to a leading mortgage lender.

Latest data from the Nationwide Building Society said its house price index rose 13.4 percent in June compared with the same month last year, a rate of growth not seen since November 2004.

The lender's house price index showed prices increased 0.7 percent compared with the previous month, pushing the average residential property price to more than 245,000 pounds ($339,000), Reuters news agency reported.

Nationwide said there was an increase in annual house price growth across all of the UK in the second quarter, while the largest gains were in Northern Ireland and Wales.

June has been the last month when buyers could take advantage of a full tax break, which the government implemented last year as an incentive to kick-start the market amid the COVID-19 pandemic.

The first 500,000 pounds of properties purchased in England or Northern Ireland were exempt from the stamp duty tax, and a 250,000 pound tax-free allowance will continue to run until the end of September.

Despite the tapering of the incentive, demand is expected to stay strong, Nationwide said. Quoted by Reuters, the lender's chief economist Robert Gardner said: "While the strength is partly due to base effects, with June last year unusually weak due to the first lockdown, the market continues to show significant momentum.

"Underlying demand is likely to remain solid in the near term as the economy unlocks.

"Consumer confidence has rebounded while borrowing costs remain low. This, combined with a lack of supply on the market, suggests further upward pressure on prices. But as we look toward the end of the year, the outlook is harder to foresee."

Gardner cautioned that there may be a drop-off in demand in the fall.

"Activity will almost inevitably soften for a period after the stamp duty holiday expires at the end of September," he said.

The Times said house prices have risen in the UK due to "pent-up demand that built in lockdown", and because of "a desire to move from urban areas to houses with bigger gardens".

Nationwide said demand for larger properties seen during the pandemic would continue to help the market once the tax incentive ends.

It also warned that prices were now close to a record high relative to average incomes, meaning first-time buyers were still finding it difficult to raise deposits despite the government help.