UNITED Kingdom house prices rose at the slowest pace in almost 1 1/2 years in June as higher interest rates discouraged potential buyers

UNITED Kingdom house prices rose at the slowest pace in almost 1 1/2 years in June as higher interest rates discouraged potential buyers, the Royal Institution of Chartered Surveyors said yesterday.

The number of real-estate agents and surveyors reporting higher home values in England and Wales outnumbered those showing declines by 10.6 percentage points in June, the lowest reading since January 2006, the group said.

In London, the balance of house-price gains matched the lowest since February, Bloomberg News reported.

Britons face more expensive mortgages after the Bank of England raised its benchmark interest rate to a six-year high this month to rein in consumer-price inflation.

Policy maker Andrew Sentance said this week that the property market and consumer spending may have to bear the brunt of any economic slowdown after house prices gained more than 10 percent in the past year.

"House prices have finally started to cool significantly," Ian Perry, a spokesman for RICS, said in a statement. "The July rate increase may not mark the peak of the current interest-rate cycle and earlier rate rises have yet to fully filter through."

Investors are betting the central bank's key rate will rise at least once more from the current 5.75 percent. The implied rate on the December interest-rate futures contract fell 0.01 percentage point to 6.27 percent as of 8:40am in London yesterday.

The contract settles to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank benchmark for the past decade.

Surveyors this month reported the biggest decline in the number of new house seekers since February, and their confidence in the outlook for future sales fell to the lowest level since June 2004, the RICS survey showed.

Other reports on the property market are mixed. HBOS Plc, the UK's biggest mortgage lender, said on July 4 that house prices increased at a faster pace last month and by an annual 10.7 percent in the second quarter.

Property researcher Hometrack Ltd said prices in June climbed at the slowest pace since December.

Bovis Homes Group Plc shares fell the most on record, and other UK home builders tumbled on Monday.

"Buyers have started to understand that they have to pay more and are taking longer to look at their finances and see what they can afford," Bovis CEO Malcolm Harris said in an interview. Yesterday's report showed signs of cooling in London, which has the nation's most expensive properties. The price balance in the capital stayed at 57 in June, the same as the previous month and down from 70 in April.

"There is a degree of hesitation creeping into the minds of some buyers," RICS cited Noel Flint, a real-estate agent at Knight Frank in Knightsbridge, the London area where Mohamed Al-Fayed's Harrods Ltd department store is situated, as saying. The "level of activity overall appears to be cooling, due in part to talk of higher interest rates."

New British Prime Minister Gordon Brown said on Wednesday he would make changes to the mortgage market to help more people buy property.