The strong pace of house price growth cooled off in the heat of the July weather as the summer holidays kicked in, a report has found.
Despite the signs of a seasonal slowdown, house prices are 1.3% higher than they were a year ago following six months in a row of increases, marking the strongest annual growth recorded in nearly three years, according to property analyst Hometrack's figures.
Weakening demand from people looking to buy a home in July led to to house prices increasing at a slower rate of 0.3% month-on-month, down from rises of 0.4% recorded in both May and June.
Across England and Wales, 29% of postcode districts registered price increases over the month, falling back from 31% seeing rises in June, which had been the biggest uplift recorded in almost six years.
Hometrack said that the strong momentum pushing up house prices seen in the first half of the year looks set to ease further as fewer new buyers enter the market over the summer. Depending on how far the market picks up again this autumn, 2013 could see the highest increase in house prices since the economic downturn.
The number of new buyers registering with estate agents rose by 1% in July, showing weaker growth than a 1.6% increase in June and a 2.5% uplift in May.
However, other indicators of the "health" of the market are still improving on the back of continued price rises and rising sales volumes. Sellers are achieving 94.4% of the asking price on average, taking the percentage achieved back to 2007 levels. Homes are taking just over eight weeks to sell, marking the shortest typical sales period in six years.
Prices increased more strongly during the first half of this year than many experts had predicted, boosted by Government schemes such as Funding for Lending, NewBuy and Help to Buy which have made mortgages much more accessible and have seen more first-time buyers flooding into the market, helping to get chains moving.
London continues to be the "engine" for house price growth, with prices up by 0.7% month-on-month, Hometrack said. Properties in the English capital are taking less than four weeks to sell, showing continued strong demand.
Prices rose by 0.4% in the South East, by 0.2% in the South West and Wales and by 0.1% in East Anglia, the North West and the West Midlands. Prices were flat in the East Midlands, the North East and Yorkshire and Humberside.
Richard Donnell, director of research at Hometrack, said: "The momentum generated over the last six months looks set to moderate in the short term with less upward pressure on prices.
"The year has got off to a strong start. The level to which new buyers enter the market in the autumn will dictate whether 2013 turns out to be the year with the highest increase in house prices since the start of the downturn."
Mr Donnell said that a lack of homes on the market to choose from will to remain an important factor in the market in the second half of the year. He said more sellers are likely to come to market, encouraged by signs of confidence returning to the housing market.
However, he warned that agents have been reporting growing "price sensitivity" among buyers and any sign that sellers are being unrealistic about prices could lead to a drop in sales later in the year.
The Hometrack study asks estate agents and surveyors about achieved prices.