HOUSE prices rose by 1.3 per cent during May after growth ground to a halt the previous month, figures showed this week.

Despite the increase, which puts the average price of a house at £124,752, annual house price inflation for the year to the end of May fell to 21.3 per cent from 22.2 per cent the previous month.

Nationwide said it expected annual house price inflation to decline further during the next few months, with smaller monthly increases of between 0.5 per cent and 0.7 per cent for the rest of the year.

Alex Bannister, Nationwide's group economist, said: "We remain confident in our forecast for house price growth of ten per cent during 2003.

"The trend in house price growth is gradually declining and the economic outlook appears consistent with a steady slowdown rather than a crash."

He added that London would see much slower growth of between just two and five per cent, while the north was likely to have above average increases.

The building society said so far during 2003 sales were seven per cent lower than for the same period the previous year, with total transactions during April falling to 114,000 - their lowest level since January 2001.

At the same time the number of first-time buyers taking their first step on to the property ladder was about 15 per cent lower than at the same time the previous year.

London, East Anglia, the south-east and south-west have all seen declines of more than 30 per cent in first-time buyer numbers year-on-year.

Mr Bannister said: "The recent sharp decline in first-time buyer numbers is likely to reduce upward pressure on the more affordable end of the market.

"It is likely that any easing in price growth towards the bottom of the market may ripple upwards and be the mechanism for the more broadly based slowdown we expect this year."