Growth in UK house prices slowed down to 1.9% in July following a 2.4% spurt in June, the latest Halifax house price index reveals.
Housing transactions eased back in June to 132,000 from 139,000 in May, but remain around 3% higher year on year.
The annual rate of house price inflation is now 20.8%, compared to 19.3% in June.
Shortages of houses for sale is driving up prices in London and the south, with estate agent stock of unsold property at its lowest level for over 20 years.
The ratio of house prices to average earnings is currently 4.1, well below the record peak of 5.
Mortgage approvals eased from a record £19.7bn in May to £17.7bn in June. However, approvals remain over 23% higher than June last year. Halifax says the June figures may have been distorted by reduced trading days from the additional Bank Holiday and Jubilee celebrations in the month.
Gary Styles, head of group economics, says: “The UK housing market has been very strong in 2002 and July was no exception. House price inflation rose to 20.8% last month up from 19.3% in June.
“Indicators of housing market activity whilst confirming a buoyant marketplace also show some early signs of slowing. The latest figures from the Bank of England show that the number of mortgage approvals for house purchase eased in June from the record levels recorded in May. Inland Revenue transactions for June also show a modest decline but remain 3% higher than in the same period last year.
“We expect house price growth to slow in the coming months as more sluggish income growth, higher interest rates and lower buy-to-let volumes reduce overall demand levels in the market.”