Aug. 14 (Bloomberg) -- Expectations for U.K. house prices fell to the lowest since 2005 last month after five interest-rate increases in the past year deterred homebuyers, the Royal Institution of Chartered Surveyors said.

The number of real-estate agents and surveyors saying they expect prices to decline over the next three months outnumbered those forecasting gains by 9 percentage points from 0.7 percentage point in June, London-based RICS said. That's the most pessimistic reading since June 2005. A gauge of house-price inflation in July stayed close to the lowest since January 2006.

The Bank of England this month signaled it's ready to raise its benchmark rate again to rein in inflation. A rate increase would swell borrowing costs for Britons already laden with record debt of 1.3 trillion pounds ($2.7 trillion.)

``Buyer activity has pulled back a little over fears that we may have seen the top of the market,'' Jeremy Leaf, an RICS spokesman, said in the statement. ``The combination of softening demand and supply is causing market conditions to weaken further.''

The Bank of England raised its key rate to a six-year high of 5.75 percent in July. The five increases over the past year have boosted the monthly repayment on an average 200,000-pound mortgage by about 100 pounds, according to the Council of Mortgage Lenders.

`Static' Prices

``The recent interest rate hike has subdued the market and prices are relatively static,'' said Jonathan Clayton, an estate agent at Bentley Higgs & Co. in Blackpool, northwest England.

New buyer enquiries declined at the fastest pace since August 2004, dropping in all regions except Wales, RICS said. At the same time, the stock of unsold property on surveyors' books increased to the highest since January, the report showed.

The RICS report also showed signs of a slowdown in London, which has led the U.K.'s housing boom over the past decade. While the market is still ``very strong,'' the balance of surveyors reporting price increases fell to 51 percentage points, the lowest since January 2006, from 57 in June.

Confidence in the price outlook fell below the survey's long-term average for the first time since October 2005.

``Price growth has virtually stopped,'' said Richard Cotton, an estate agent at Cluttons in London's Kensington and Chelsea district, where prices have risen 71 percent in the past year to average more than 1 million pounds. ``There is a feeling amongst buyers that the top end of the market has been reached.''

Rate Expectations

The balance of surveyors reporting higher prices for July was 12.6 percentage points, compared with 10.4 points in June, RICS said in its report.

The Bank of England may put further pressure on mortgage holders by raising borrowing costs as soon as next month. The central bank signaled Aug. 8 that one more increase may be needed to push inflation, which accelerated to a decade high of 3.1 percent in March, back to its 2 percent target.

Investors expect one more move to 6 percent by year-end, futures trading suggests. The implied rate on the December interest-rate futures contract was 6.12 percent yesterday. The contract settles to the three-month London interbank offered rate for the pound, which averaged about 15 basis points more than the central bank benchmark for the past decade.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net

Last Updated: August 13, 2007 19:06 EDT