Sept. 14 (Bloomberg) -- London house prices fell the most since 2004 this month after five interest rate increases in a year and turmoil in financial markets sapped buyers' confidence, according to a Rightmove Plc report.

The average asking price for a home in the U.K. capital declined 2.5 percent from August to 384,439 pounds ($774,000), according to Britain's biggest real-estate Web site. The reading is taken from a survey conducted from Aug. 12 to Sept. 8. For the U.K. as a whole, prices fell 2.6 percent, Rightmove said.

Growth in London property values is faltering after the collapse of the U.S. subprime mortgage market triggered losses in securities linked to the loans and spurred banks to raise lending rates. The turmoil is piling pressure on consumers, already finding it costlier to pay loans after the Bank of England raised its key rate to a six-year high in July.

``We've reached the peak of the current boom,'' Miles Shipside, commercial director of Rightmove, said in an interview. ``Affordability is stretched, and people are concerned about global financial markets and their ability to take on greater commitments.''

The release, which was originally scheduled for Sept. 17, appeared on another housing Web site today.

The market turmoil claimed its biggest U.K. victim this week when Northern Rock Plc got emergency funding from the Bank of England, the largest bailout of a British lender in 30 years.

Subprime Losses

The decline in London home values is the biggest since a 4.3 percent drop three years ago, and the second consecutive month where asking prices fell. Prices slumped in August 2004 after Bank of England Governor Mervyn King said U.K. property values were ``high relative to earnings'' and that continued price increases couldn't be guaranteed.

Losses on securities linked to subprime mortgages spurred the biggest decline in the benchmark FTSE 100 Index in four years on Aug. 16 and pushed up corporate borrowing costs.

Abbey, the second-biggest U.K. mortgage lender, on Sept. 12 raised interest rates on home loans by as much as 20 basis points to cover the increase in costs. A basis point is 0.01 percentage point.

Banks' reluctance to lend to each other ``is putting very clear pressure on mortgage interest rates,'' said Peter Spencer, economic adviser at the Ernst & Young Item Club in London. ``Eventually people will lose confidence.''

Slowdown

Fewer homeowners are offering their London properties for sale with an eye to moving house, with new listings falling 48 percent the week ended Sept. 7. That's the biggest decline since the beginning of the year, when Rightmove started tracking the number of listings, Shipside said.

Rightmove's report adds to evidence that the property market is cooling after a tripling of house prices since 1997.

The Royal Institution of Chartered Surveyors said U.K. house prices fell for the first time since 2005 in August, with the number of real-estate agents and surveyors saying prices declined outnumbering those reporting gains by 1.8 percentage points.

Bank of England policy makers left the key interest rate at 5.75 percent on Sept. 6 to gauge the impact of market turbulence on economic growth.

``Uncertainty in the financial sector and interest rates may be dampening the frenzy,'' said Gary French, a real estate agent at Friend & Falcke in Kensington and Chelsea, London's priciest borough.

Supply Squeeze

Still, a shortage of homes available for sale may limit price declines, Shipside said.

``The shortage is underpinning prices,'' he said. ``It's hard to read whether this trend of declines will continue.''

Only the boroughs of Tower Hamlets in east London and Kensington and Chelsea saw prices gain during the survey period, Rightmove data show.

James Gubbons, a realtor at Dauntons, which covers the Pimlico and Westminster areas of central London, said a lack of supply is supporting prices even though fewer people are seeking homes.

He said it recently took two weeks to sell a two-bedroom property in Pimlico, near the Tate Britain museum, for 850,000 pounds. He initially valued the home at 790,000 pounds.

``There are so many people looking to buy, that when some drop out because of higher interest rates there are others still in reserve to take their place,'' he said. ``Some are looking at higher interest rates, seeing they can't afford the property they want, and either reducing their aspirations or renting.''

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: September 14, 2007 08:16 EDT