Aug. 20 (Bloomberg) -- London house prices fell for the first time in a year this month, a sign higher interest rates are cooling Britain's property boom, a Rightmove Plc report showed.

The average asking price for a home in the U.K. capital slipped 0.1 percent from July, the first drop since August 2006, to 394,268 pounds ($777,575), Britain's biggest real-estate Web site said in a statement today. The survey measured 150,000 properties listed for sale in the four weeks through Aug. 11.

Bank of England policy makers said Britain's housing market had showed ``signs of softening'' when they kept their benchmark interest rate at a six-year high this month. A slump in global financial markets may erode confidence further among buyers in London, where demand from bankers has helped drive a tripling of U.K. home values in the past decade.

``Record prices and high interest rates have stretched the affordability for everyone,'' Miles Shipside, Rightmove's commercial director, said in an interview. ``Until this stock market turmoil blows over, there is a risk to the housing market, too. Next year, we will see a definite slowdown.''

Throughout the U.K., house prices rose 0.6 percent in the month to 241,474 pounds, compared with a 0.3 percent gain in July, Rightmove said. On the year, prices rose 12.8 percent, up from 10.3 percent in July.

Rates Unchanged

The central bank left the benchmark rate unchanged at 5.75 percent on Aug. 2 after five increases in the past year.

Prospects of a further move have receded during a credit squeeze caused by the U.S. subprime crisis, which led to the biggest one-day drop for the U.K. benchmark FTSE-100 stock index in more than four years on Aug. 16. The next day, economists at JPMorgan Chase & Co. and Citigroup Inc. cut their predictions for further rate increases, saying the peak has been reached.

The implied rate on the December U.K. interest-rate futures contract was 6.03 percent at 8:57 a.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.

Higher borrowing costs have made it more expensive for Britons to repay record debts of 1.3 trillion pounds. Homebuyers have also been stretching their finances more than ever to fund purchases, with first-time mortgage borrowers taking out loans at a record median of 3.37 times their annual income in June.

London's Tower Hamlets, one of the five districts in the capital that will host the 2012 Olympic Games, showed the biggest monthly decline in August, with a 6.9 percent price drop. In Kensington and Chelsea, the city's priciest borough, whose residents include bankers, soccer players and film actors, values fell 1 percent to an average of 1,449,385 pounds.

Signs of `Plateau'

``Prices have certainly shown signs of plateauing,'' Tim Le Blanc-Smith, a real-estate agent at John D. Wood in London's South Kensington neighborhood, said in an interview. ``A bit of the froth has come off the market.''

Prices still rose 23.4 percent on the year, and more than half of London areas gained on the month. A separate survey released yesterday by real estate broker Knight Frank LLC showed increases in London luxury-home prices accelerated by a record 3.9 percent in July, the biggest monthly increase since the index began in 1976, on demand from wealthy foreigners.

`Reasonable' Expectations

Four out of 10 regions in England and Wales showed price declines in August. Britons trying to sell their properties have adopted ``more reasonable pricing expectations'' in the past four months, as increases in home costs have stayed below 1 percent, Rightmove said. Annual gains in values may slow to about 3 or 4 percent, in line with wage inflation, the report said.

Other housing market reports also suggest that prices are cooling. Expectations for U.K. home prices fell to the lowest since 2005 last month, the Royal Institution of Chartered Surveyors said Aug. 14.

Prices will slow further as the Bank of England's previous rate increases begin to take effect on the property market, Rightmove's Shipside said.

``With interest rates where they are, we have reached the limit of affordability,'' said Shipside. ``If rates go up to 6 percent it will be more of the same, with fewer people moving house or getting onto the property ladder.''

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

Last Updated: August 20, 2007 04:07 EDT