Interest rate rises hit house prices: RICS

The Bank of England has succeeded in applying the brakes to the housing market and London's economy by raising interest rates, according to two reports published today.

The Bank of England has succeeded in applying the brakes to the housing market and London's economy by raising interest rates, according to two reports published today.

The growth in house prices fell to its slowest for 10 months in June, according to a survey of chartered surveyors.

The Royal Institution of Chartered Surveyors said London and the South-east recorded price falls for the first time since the Iraq war last year while responses from the North suggested its recent boom was coming to an end.

"Two consecutive interest rate rises seem to be finally biting at the heels of the housing market," Ian Perry, RICS's housing spokesman, said.

The survey showed that new buyer inquiries fell sharply in June, indicating the recent warnings by the Bank of England over the likelihood of a property crash had hurt demand. This in turn fed through to the first forecast of a fall in prices and sales in the coming months by agents for more than a year. "Many estate agents feel less optimistic about prices rises, however tight market conditions remain," Mr Perry said.

There was a pick-up in the number of new homes coming onto the market, which RICS put down to a "knee-jerk reaction" to recent concerns that prices might fall. Despite a small rise last month, the stock of unsold properties is still close to the low levels not seen since the 1970s, which RICS said would support the market.

Meanwhile the London Chamber of Commerce said that business confidence was hit last quarter amid continuing fears of further rises in interest rates and inflation. It said that the balance of firms expecting the economy to improve over the coming months fell to 11 per cent from 31 per cent in the first quarter of the year and 41 per cent at the end of 2003.

Derek Sach, the LCC president, said declining confidence was almost certainly a reaction to continued unease over rates. "A further rise in interest rates or slide in confidence could have serious repercussions for economic stability at both a regional and national level."

A majority of analysts in the City of London believe that the Bank will raise rates for the fifth time in 10 months in August to stem inflationary pressures.

Yesterday the pound hit a five-month high of $1.8771 against the dollar. "Almost everyone expects the bank to lift rates at its August meeting," said Niels Christensen, a currency strategist at Société Générale. "That should keep sterling supported."

The markets are now focused on key figures towards the end of the week. Analysts expect the first estimate of GDP in the second quarter of show above-trend growth of 1.0 per cent.