The trend for house price increases to slow across England and Wales has been confirmed by latest figures from the Land Registry. Prices rose by 0.4% in July but the annual rate of increase fell back from 8.5% to 6.7%.

The average house price in England and Wales went up to £166,798, just £1,864 higher than in January. The annual rate of house price inflation has now fallen for two months in a row, after picking up for the previous 15 months.

In the past year, house prices have grown most vigorously in London, where they rose by 1.6% in July alone, taking the annual increase in the capital to 12.1%. That pushed the price of the average London home to up to £343,730.

Prices also rose in the past 12 months in most other parts of England and Wales, though not as strongly, but they fell in the North East of England by 1.4%, and in the North West rose by just 0.3%.

Brighton and Hove saw the biggest price rises at 17% during the past year.

The number of homes sold in England and Wales averaged 48,219 in the four months from February to May this year. That was higher than the same period last year, when the monthly average was 36,947 during the nadir of market activity. Sales have picked up since then, alongside prices.

However, “transaction volumes, while not at 2006 levels, are increasing slowly,” the Land Registry said. The number of brokers saying rents increased in the three months to July exceeded those reporting declines by 27pc, a survey published by RICS found. In the previous quarter, 30pc more reported increases than drops.

The lack of buoyancy of house prices is already having knock-on effects. The Royal Institute of Chartered Surveyors (Rics) has revealed that a third more respondents predicted higher rents overall in the next quarter than those who forecast a decline while demand for house rentals outstripped that for flats.

Borrowers have been struggling to secure significant deposits of at least 25% to secure the best mortgages rates. They are also concerned about making large financial commitments amid widespread job insecurity in the fragile economic recovery and the rising cost of living as inflation escalates.

Banks have restricted loans for buy-to-let transactions, reducing the number of rental properties entering the market, and landlords are showing little appetite for selling properties after tenants move out.

The number of mortgages approved in the UK dropped for the second month in a row in July to hit a five-month low, the British Bankers’ Association revealed this week. Home loans slid 2.5% from the previous month to 33,698, or just 1,000 a day. The total is down 18.5% from a year earlier.

The tentative recovery of the UK housing market was shaken once again this week as a survey showed that the summer holiday season has reduced demand and therefore prices.

The website Rightmove has released figures which show that new listings of property have outnumbered mortgage approvals by a ratio of 5:2. With many potential buyers on holiday, the over-supply has led to asking prices falling in the month to 7 August.

Last month the average asking price in the UK was £232,241, this was down from £236,332 a month earlier.

Analysts believe that the market needs an external ‘boost’ to get housing prices rising again but since the stock shortages of last year are now gone and mortgages still lacking widespread availability this boost is not expected within 2010.

The mortgage problem is still the one of most concern to buyers and there has been some good news. The Council of Mortgage Lenders (CML) says that mortgage lending to home buyers picked up again in June.

There were 52,000 new loans granted to home buyers, 19% more than in May and up 14% on the same month a year ago. However, the CML still said it was still cautious about the prospects for the coming months.

The number of property sales has been rising this year, from 50,000 in January to 86,000 in June, according to recent data from HM Revenue & Customs. However, this has still left lending and sales at levels roughly half those recorded in the years running up to the onset of the credit crunch in 2007.

One continued side effect of the banking crisis is that mortgage lending is still being severely rationed. After a slight relaxation by lenders in April and May, first-time buyers in June were back to having to put down deposits averaging 24% of the value of the homes they are buying.

However, first-timers are managing to get back into the market. They took 28% more mortgages in the first half of this year than they did in the first six months of 2009.

The UK’s property market now appears to have stabilised around its recent low levels, according to the governor of the Bank of England, Mervyn King. The Bank’s latest Inflation Report points out that lenders have been rationing “higher-risk” loans and charging more for them.

The word being used most about general economic recovery as well as that in the housing market is ‘choppy’. This means that while the overall picture is one of gradual improvement there will still be small disappointments and problems along the way.