The uptick in the UK housing market should continue but the prospect of interest rate hikes may weigh, the Nationwide Building Society said on Friday.
Nationwide said housing market activity had increased modestly in 2015 after slowing in 2014.
It said a strengthening labour market underpinning economic recovery should keep supporting both activity and house prices. Britain's chronic housing shortage is also likely to prop up prices, it said.
But Nationwide said shifts in interest rate expectations may affect the housing market, with analysts divided about whether or when rates will rise in 2016.
It also said competition in lending markets was still robust and Nationwide expects downward pressure on lenders' margins in the second half of the year and into 2016/17.
British house prices have risen between 3% and 4% on an annual basis but London prices were more than 10% higher in the third quarter than in the same period a year ago.
The group added: "Such out-performance is unlikely to be sustained over the long term, given that key measures of affordability are already stretched."
Nationwide said its mortgage lending increased 14% to a record £14.9bn in the first half. Underlying profit also rose 27% to a record £801mln and statutory profit lifted 34% to £802mln.