The Halifax said property values increased by 1.1% in March, down from February's rise of 1.8%, as an increasing number of properties coming on to the market helped to calm prices.

The latest rise took the annual price increase to 23.4% with the average property now costing �127,040.

The lender reported a growing divide between the markets in the north and south of the UK, with the market slowing to a "much greater extent in the south".

It said house prices would rise by only 2 to 3% in London and the South East of England this year.

In contrast, it said 2003 would be the "year of the north", predicting rises of 12 to 15% in northern England and Scotland.

North-south divide

In the first three months of this year house prices rose by 8.1% in the north.

Property prices also boomed in East Anglia, where growth was 7.4% and Wales were prices rose by 6.2%.

We expect the difficulties that first-time buyers face in entering the market... to increasingly curb demand and cause house price inflation to moderate Martin Ellis, Halifax group economist

Halifax said particular hotspots were the north in general and Yorkshire and the Humber, where the annual rate of house price growth was the highest since the second half of 1989.

Regionally, on an annual basis, the East Midlands experienced the biggest increase in house prices, with a 34% increase, followed by the north at 31% and Yorkshire and the Humber, with growth of 28%.

In contrast, the once booming London market has slipped down the league table, and is now the ninth slowest out of 12 UK regions.

Prices in the capital increased by 2.7% in the first quarter, continuing the slowdown in price rises in London since the second quarter of 2002 when prices increased by 5.9%.

First-time buyers

Martin Ellis, group economist, said low mortgage rates and low unemployment would continue to have a positive effect on the housing market.

But there was growing evidence that properties had becoming too costly for first-time buyers, and they were increasingly unable to enter the market.

"Evidence that this constraint is beginning to bite was provided by a fall in the proportion of mortgage lending accounted for by first-time buyers to below 30% of all loans to home purchasers for the first time in February," said Mr Ellis.

"We expect the difficulties that first-time buyers face in entering the market, particularly in the south of England, to increasingly curb demand and cause house price inflation to moderate gradually during the rest of 2003.

General picture

Average prices rose by 4.4% in the first three months of 2003 - equivalent to an annual rate of 19%.

This is slower than the pace of house price growth recorded in 2002, when prices rose by 26%.

However, Halifax said it was not revising its overall forecast for 2003 - and said it did not expect widespread house price falls.