British house prices rose slightly less than expected in June, suggesting higher interest rates are beginning to take their toll on the property market, a survey showed yesterday.

Mortgage lender Halifax said house prices rose 0.4 per cent in June, taking the annual three-month rate to 10.7 per cent. That was below forecasts for a monthly gain of 0.5 per cent and annual rise of 10.9 per cent, but above a 0.2 per cent rise in May. Annual house price inflation for that month was 10.6 per cent.

‘Overall, the evidence suggests to us that the housing market has peaked and is gradually coming off the boil,’ said Howard Archer, economist at Global Insight.

The figures came after Finance Minister Alistair Darling expressed concern about the financial burden faced by thousands of Britons whose fixed-rate mortgages are due to expire just as interest rates are expected to go up for a fifth time in a year.

The Bank of England is widely expected to raise borrowing costs to 5.75 per cent today, following four quarter percentage-point increases since last August.

Halifax chief economist Martin Ellis reckons this could cool the market. ‘The increase in mortgage interest rates - both for fixed and variable products - is curbing demand and will continue to act as a constraint over the coming months,’ he said.

But other housing market data have suggested the market remains in good shape, despite the rising cost of borrowing.

Mortgage lender Nationwide said last week that house prices rose 1.1 per cent in June, taking annual house price inflation to its highest in more than 2 years.

BoE data showed mortgage approvals rose more than expected in May, suggesting the outlook for prices is firm. Halifax said the cost of an average home stood at £197,461.

Source: The Business Times, 05 July 2007