The surge in UK house prices has slowed to a more "realistic" rate, according to figures for August.

Research group Hometrack found that the average UK house price rose by just 0.7% in August and by a modest 0.5% in London.

The jaws of demand over supply are closing

Hometrack

Hometrack says the housing market has now taken a "reality check" and growth has fallen back substantially since the leap of 2.6% in May.

But analysts are confident there will be no sudden crash and predict continued growth next year.

While demand is still exceeding supply, this gap is also closing and houses are taking slightly longer to sell than three months ago.

Nonetheless, Hometrack says the overall picture remains healthy and it does not expect to see a repeat of the slump seen in the 1990s.

Returning to normality

A key reason for the slowing growth over the last months is the quieter "holiday season".

But Hometrack says the numbers also reflect "a move back towards normality after clearly unsustainable rates of inflation over the last six months".

Strongest August rises

South Yorkshire 1.9% Nottinghamshire 1.8% South Lincolnshire 1.8% Isle of Wight 1.7%

Since the beginning of 2002, UK house prices have risen by an average of 12.6%.

And Hometrack expects annual growth to reach 20% in 2002 before slowing to 8% in 2003.

Its survey of property agents found that the number of active buyers fell in August for the second month in a row.

Nonetheless, house prices are still growing at almost eight times the rate of retail price inflation.

Lowest August rises

Parts of London 0.2% Berkshire 0.2% Oxfordshire 0.3%

Hometrack economist John Wriglesworth said: "The boom continues and I am confident there will be no nineties style housing market recession".

One reason for the group's confidence is that the numbers of people looking to buy a house is still exceeding the number of properties for sale - although this gap is closing.

Mr Wriglesworth said "the jaws of demand over supply are closing" around the country, meaning the more modest price growth should continue.