British house prices rose 3.7% in the second quarter
UK home prices

The rate of UK house price growth slowed down in July, despite continued improvement in overall market conditions, as new-buyer demand waned at the start of the summer holidays.

Average house price growth in England and Wales rose 0.3% month-on-month in July, compared to a 0.4% increase in June, according to a survey by property tracking website Hometrack.

However, prices rose 0.7% in London as the capital city continued to drive overall house price growth.

"The rate of house price growth slowed slightly in July as a result of weakening demand as we enter the holiday season," said Richard Donnell, director of research at Hometrack in a statement.

"The momentum generated over the last six months looks set to moderate in the short term with less upward pressure on prices."

Hometrack noted that new buyer registrations are slowing due to seasonal factors.

First-time buyer demand for housing grew 1% in July, slowing from 1.6% in June and 2.5% in May, according to the report.

Meanwhile property listings increased 2.4%, faster than a 1.6% rise in June.

It was the first time in six months that new supply exceeded growth in demand.

Hometrack expects a further slowdown in demand over the rest of the summer while supply is likely to expand as developers look to benefit from improving market conditions.

New buyers entering the market in the autumn will decide the growth of the housing market this year, according to the report.

"We do not expect the increased supply to ease the scarcity of homes for sale," Donnell added. He noted that with increase in supply, there is a risk that sellers may increase asking prices too far ahead of demand, which, in turn, would result in lower sales later in 2013.

On a yearly basis, house prices climbed 1.3%, accelerating from the 0.8% gain in the previous month.

Help-to-Buy and Housing Bubble

After suffering from the economic crisis, the UK housing market has been steadily improving over the last year following government schemes, such as Funding for Lending (FLS) and Help to Buy.

Last year, the Bank of England launched the FLS, which helps banks to provide loans at lower interest rates to businesses and individuals.

In addition, the Government's Help to Buy Scheme, launched earlier this year, has been helping first-time buyers with eased mortgage rules.

In an interview with BBC, Business Secretary Vince Cable said that the government's flagship Help-To-Buy Scheme would lead to another housing bubble.

"The Help to Buy scheme is actually quite complex," Cable told BBC. "We have one part that's already operating, which is providing mortgages against new homes, nobody has questioned that."

"The proposal which hasn't yet been implemented, which is providing a guarantee for a limited range of mortgages, could be a problem. It could inflate the market," he said.