UK RICS House Price Balance -1.8% In Aug Vs +10.8% In Jul

UK RICS House Price Balance -1.8% In Aug Vs +10.8% In Jul

LONDON (Dow Jones)--U.K. house price growth fell in August for the first time since October 2005, as higher interest rates and consumer caution begin to weigh on the housing market, according to a survey released by the Royal Institution of Chartered Surveyors Thursday.

The RICS survey showed that, in seasonally adjusted terms, the proportion of surveyors reporting a rise in house prices was exceeded by the proportion reporting a fall in prices with the balance falling to -1.8 percentage points in August, down from 10.8 points in July.

The decline in the headline measure was a surprise. Economists surveyed by Dow Jones Newswires last week had expected only a small slowdown in the measure to a positive balance of 10.

RICS also revised the July number downward from an originally reported 12.6 points.

"Potential house buyers have become far more cautious as they wait and see what effect interest rate rises will have on household finances," said RICS spokesman Ian Perry. "Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step too far."

The survey is weaker than other August house price indexes from U.K. lenders Nationwide and Halifax, although both did report a slowdown in the annual rate of price inflation, which, economists say, is due to higher interest rates.

The RICS survey, which also reports forward looking housing market measures, said that new buyer inquiries declined for the ninth straight month in August and at the fastest pace since the peak of the last rate cycle in August 2004.

The level of sales expected by surveyors improved a little from July but remains in negative territory while the number of newly agreed sales fell for the third month in a row and by the largest amount since October 2004, RICS said.

"The market will soften further going into the autumn, reducing some impetus from those that have been chasing a rapidly moving target," Perry said.

The rate at which the housing market slows should be contained, however, as economists now expect the Bank of England to keep rates on hold at 5.75% for some time, a view that was further cemented by a statement released by the Monetary Policy Committee following the bank's announcement to keep rates unchanged at its September meeting last week.

A key point the bank made was on inflation: "CPI inflation fell back to 1.9% in July and may remain around, or a little below, the 2% target for the next few months. Pay pressures remain muted," the MPC said.

Keeping inflation anchored remains key for the BoE so news that the CPI may have been tamed earlier than expected is clear evidence that rates may well have now peaked.

RICS also reported that house prices fell in eight of the 12 regions it covers, with the sharpest decline of -41 reported in the west midlands of England. Prices continued to rise in London at a balance of +31 and they also rose in Scotland and south east England. There was no change in average house prices in south west England, RICS said.