July 23 (Bloomberg) -- U.K. house prices rose in July at the slowest pace this year as rising interest rates sapped demand outside of London, where home values surged.

The average asking price in England and Wales gained 0.3 percent to 240,001 pounds ($493,000) from a month earlier, Rightmove Plc, the U.K.'s biggest real-estate Web site, said in a statement today. That was the smallest increase since prices fell in December. Home values in London rose 1.8 percent, more than double June's pace.

The Bank of England has raised its benchmark rate five times in the past year to bring down inflation, boosting mortgage payments and deterring first-time buyers. The report highlights the gap between London, where prices have been boosted by banking bonuses and wealthy foreigners, and the rest of Britain.

``Demand from the well-paid and a buoyant economy mean that London may be shielded from a downturn,'' said Miles Shipside, Rightmove's commercial director, in an interview.

The U.K. central bank raised its rate to 5.75 percent this month, increasing the burden on consumers already shouldering 1.3 trillion pounds in debt. The Council of Mortgage Lenders says monthly payments on an average variable-interest rate home loan have risen almost 100 pounds in the past year.

The annual pace of price gains slowed to 10.3 percent in July from 13.2 percent the previous month, said Rightmove, which measured about 200,000 properties put on sale from June 10 to July 14. Prices have risen more than 20 percent since February 2006.

`Duck and Weave'

``Sellers are going to have to duck and weave with their asking prices, especially if there is another rise in interest rates,'' said Shipside.

A lack of housing has helped drive up property prices this year even as the Bank of England raised borrowing costs, widening the wealth gap between those who own a home and Britons who can't afford one. The government will announce details today on how it will implement Prime Minister Gordon Brown's plans to build 3 million new homes by 2020.

In London, the average price of a home climbed 21.7 percent from a year earlier to 394,730 pounds this month. Values in the City of Westminster borough increased 5.7 percent from June and 52 percent in the year. In Kensington and Chelsea, where average prices of 1.46 million pounds make it the city's most expensive district, values rose 71 percent since July 2006.

``Instead of the traditional North-South divide, we now have a divide between London and the rest of the country,'' Rightmove said in its statement.

Luxury Homes

Luxury home prices in London rose at the fastest monthly rate in at least 31 years in June, according to a report from real estate broker Knight Frank LLC on July 13. The average price of houses and apartments selling for at least 2.5 million pounds gained 3.1 percent in June. Prices advanced almost 35 percent from June 2006, the biggest annual gain since mid-1979.

Gains in house prices pushed the total value of U.K. assets up to 6.5 trillion pounds last year, the Office for National Statistics said today in London. Home values rose 10 percent to 3.9 trillion pounds, accounting for 60 percent of the total.

Shipside criticized Brown's efforts to tackle the shortage of housing that has underpinned the surge in prices. Housing Minister Yvette Cooper will today give details on how the government aims to accelerate construction to boost by a third the number of homes built in Britain each year.

`Too Little Too Late'

``Building more affordable housing is the right solution, but the prime minister's revised target of 40,000 extra homes per year starting in 2016 is too little too late,'' according to Shipside.

Potential homebuyers and mortgage owners may face further pressure in coming months if the Bank of England raises its rate to 6 percent, as predicted by investors. Consumer-price inflation has exceeded the bank's 2 percent target in every month since May 2006 and the U.K.'s economy is on course for the fastest pace of economic growth in three years.

The implied rate on the December futures contract was unchanged today at 6.25 percent as of 12:25 p.m. in London. 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: Brian Swint in London at bswint@bloomberg.net.

Last Updated: July 23, 2007 07:33 EDT