July 30 (Bloomberg) -- U.K. house prices increased at the slowest pace since January 2006 this month after the Bank of England raised interest rates five times, Hometrack Ltd. said.

The average cost of a home in England and Wales rose 0.1 percent from June to 176,300 pounds ($358,000), the London-based research company said in a statement today. Price gains in the capital also slowed to the weakest in 18 months, slipping to 0.2 percent from 0.7 percent, the survey showed.

Today's report is the fourth this month pointing to a cooling in property prices, which have tripled in the past decade. Investors expect the Bank of England, which announces its next rate decision this week, to lift the key rate again from the current six-year high later in 2007.

``It was inevitable that the steady increase in interest rates, which began last year, would ultimately impact on levels of housing demand right across the market,'' said Richard Donnell, Hometrack's director of research. ``We expect demand to remain weak over the second half of the year as the impact of higher interest rates continues to feed into the market.''

The U.K. housing market is the second-most overvalued after France, according to a separate report published today by Fitch Ratings. The researchers compared house prices to personal incomes and rents to determine whether home values are vulnerable to declines in 16 countries.

Mortgage Approvals

There is still evidence that the market won't cool quickly. Mortgage approval data, an indicator of future demand, was unchanged in June, the Bank of England said today. Banks granted 114,000 mortgages in June, higher than the 110,000 median prediction of 27 economists in a Bloomberg News survey.

Luxury home prices in London rose at the fastest monthly rate since real estate broker Knight Frank LLC began tracking them 31 years ago last month, suggesting the most expensive properties remain resilient to rising interest rates.

All 60 economists in a Bloomberg News survey expect the Bank of England to leave the benchmark interest rate at 5.75 percent on Aug. 2 after a quarter-point increase earlier this month. Investors expect a move to 6 percent by the end of the year.

The implied rate on the December contract was 6.19 percent at 9:55 a.m. 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.

Slower Inflation Rate

The annual rate of house-price increases fell to 5.9 percent from 6.8 percent. The supply of homes coming to the market has grown faster than demand for the past three months, said Hometrack, whose figures are based on a survey of 3,500 real- estate agents.

Other reports show price gains slowing too. The pace of increases slipped to 0.1 percent in July, a 15-month low, Nationwide Building Society said July 26. Prices rose at the slowest pace in three quarters in the three months to June, HBOS Plc, the country's biggest mortgage lender, said July 4. Rightmove Plc, the U.K.'s biggest property Web site, reported cooler growth on July 23.

Hometrack's survey reflects the views of estate agents while Nationwide and HBOS base their figures on mortgage lending. Rightmove shows movement in the prices asked by sellers.

``The latest survey results highlight the continuing turnaround in the underlying dynamics of the housing market,'' Hometrack's Donnell said.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

Last Updated: July 30, 2007 05:03 EDT