Oct. 29 (Bloomberg) -- U.K. house prices fell for the first time in two years in October, led by declines in central London, a survey by Hometrack Ltd. showed.

The average cost of a home in England and Wales declined 0.1 percent to 176,100 pounds ($361,462) from September, the London- based research group said today. Prices in central London and the financial district fell 0.5 percent, the most of any part of the country. Hometrack surveyed 6,000 real estate agents.

The report adds to evidence a decade-long property boom is petering out. Consumers are struggling to shoulder a record debt burden of 1.4 trillion pounds after interest rates rose to a six- year high and a worldwide increase in credit costs threatens jobs and bonuses at banks.

``After several months of weaker buyer confidence, falling levels of demand and declining sales volumes, prices were bound to be affected,'' Richard Donnell, Hometrack's head of Research, said in the statement today.

House prices rose 4.4 percent from a year earlier, down from 5 percent in September. The report follows mixed figures for the market last month. Mortgage lender HBOS Plc said prices fell last month while Nationwide Building Society recorded the strongest increase in three months. Real-estate broker Savills Plc estimates that central London prices may fall for at least six months.

The housing market has sputtered since the Bank of England raised its benchmark interest rate to 5.75 percent in July and a jump in market credit costs led to a run on deposits at Northern Rock Plc, the first in more than a century.

Rates Rising

The interest rate on a mortgage fixed for two years was 6.33 percent in September, compared with 5.41 percent a year earlier, according to the Bank of England. The central bank has raised its benchmark rate five times since August 2006.

Adding to evidence the property market is cooling, the Bank of England said today U.K. banks approved the fewest mortgages in 26 months in September as borrowing costs increased. Lenders granted 102,000 loans for house purchase, the fewest since July 2005 and down from 108,000 in August.

As U.S. subprime-mortgage losses spread to Europe, London banks and investment companies may cut jobs and bonuses, which helped to fuel a tripling of house prices over the past decade.

About 6,500 bankers and fund managers may lose their jobs next year in the biggest cuts since 2000, and bonuses may fall by almost a fifth to 7.4 billion pounds, the London-based Centre for Economic and Business Research Ltd. estimated this month.

Bonuses

Home values in London, where one in eight people in Britain live, fell 0.2 percent to 316,000 pounds, Hometrack said. Prices in southwest London and Hampshire in southern England declined 0.4 percent. In Cambridgeshire and Oxfordshire, they dropped 0.3 percent.

The amount of money from City bonuses coming into the London property market will fall 60 percent to 2 billion pounds in the coming year, as financiers, accountants and lawyers choose to invest in hedge funds instead of housing, according to research carried out by Savills.

Prices fell in nine of the 10 regions surveyed, with only the West Midlands showing no change, Hometrack said.

The number of buyers registering with estate agents fell for a fourth month, declining 6.4 percent, the report showed. Still, the supply of houses being put on the market is also falling, which may limit declines in prices in the next two to three months, Donnell said.

House prices fell for a second month in September, with the number of potential buyers dropping to the lowest since 2003, the Royal Institution of Chartered Surveyors said on Oct. 11.

Chancellor of the Exchequer Alistair Darling on Oct. 9 forecast economic growth in the U.K. may slow by a third to as little as 2 percent next year as higher borrowing costs curb consumer spending.

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

Last Updated: October 29, 2007 06:20 EDT