The average price of a first home has broken through the £100,000 barrier, according to the Halifax.
Price strength is hitting first-time buyers
Prices paid by first-time buyers have risen 22.6% in the past year, from £82,968 to £101,747, the bank said.
The Halifax also said house prices had increased 2.2% in January, thanks to a shortage of properties.
House prices rose by 16% over the past year. Many experts expect the Bank of England to raise interest rates this week to help cool the market.
Housing demand 'healthy'
The Halifax's findings contrast with the latest survey from the Nationwide which indicated that the market slowed down during January.
The Nationwide found that prices rose by only 0.7% on the month, giving an annual rise of 14.3%.
But the Halifax said the signs were that the property market would remain strong during 2004.
"A strengthening economy should continue to support a strong labour market during 2004, underpinning healthy housing demand," said Shane O'Riordain, general manager of group economics at Halifax.
The bank also noted that one of the main factors pushing up prices - a shortage of houses for sale - remained, with Halifax Estate Agents seeing less property listings in January than a year ago.
However, the Halifax said it expected rising interest rates this year to "act as a brake on the market".
Many analysts expect the Bank of England to raise rates by a quarter percentage point to 4% this week.
"The spectre of another boom in the housing market
really reinforces the likelihood that borrowing costs will rise this week," said Philip Shaw, an economist at Investec.
Key workers suffer
The Halifax noted that the sharp rise in the price of a first-time home had priced many out of the market.
Strong prices meant key public sector workers - such as nurses, teachers and police officers - were unable to get a foot on the property ladder in half of the UK's major towns, it said.
Nationally, nurses and firefighters were most affected with the average house price being six times the average salary for both occupations.
Greater London, the south east of England, east and west Midlands, East Anglia and the south west were worst affected.
But the bank warned the problem was likely to push northwards "as the traditional north-south divide narrows".