LONDON (Reuters) -The annual pace of house price increases in Britain slowed in May for a third month in a row and a further cooling of demand is likely as households struggle with high inflation, mortgage lender Halifax said on Wednesday.
Prices rose by 10.5% compared with May last year, down from April's 10.8% increase to show the smallest increase since January.
Prices rose in monthly terms for an 11th consecutive month, up by 1.0% in May after a 1.2% increase in April.
Russell Galley, managing director at Halifax, said a shortage of homes for sale remained the main driver for house prices, despite a tightening cost-of-living squeeze as inflation approaches 10%.
"However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it's likely activity will start to slow," he said.
"So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers' market."
Nationwide, another mortgage lender, has also said a slowdown in the housing market is likely.
Bank of England data published last week showed a sharp drop in mortgage approvals in April.
The BoE has raised interest rates four times since December, taking Bank Rate to 1.0%, and it is expected to increase them again next week after its June meeting.
Halifax said nine regions of the United Kingdom registered double-digit annual inflation, with only Yorkshire and the Humber, Scotland and London in single figures.
(Reporting by William Schomberg; Editing by Andrew Heavens)