After the mini-boom, property prices are dropping at their fastest rate in two years

The latest indication that the rise in house prices is slowing comes today from Rightmove, Britain's biggest property website, which advertises 70% of the homes for sale in estate agents around the country.

House prices, which only two months ago were steaming ahead at the fastest rate for five years, are now falling at their fastest rate for almost two years, with the south-east heading the list of the biggest fallers, the website says. The turnaround in fortunes, confirmed by recent surveys from Halifax and Nationwide, could be blamed on the Bank of England's decision to raise interest rates by a quarter point at the beginning of the month to 4.75%.

Increasing problems with affordability, after a strong surge in prices for most of this year, were also to blame for the downturn, said Rightmove. The asking price for the average house fell 1.6% to £214,040 in August, giving an annual growth rate of 9%, it said. In July it stood at 10.6%, after a 2.9% rise over the month in the asking price of the average home.

The company said much of the rise, and later fall, had been dictated by a mini-boom, followed by a slowdown, in the largest property markets of London and the south-east. The south-east dipped by 3.6% over the last month, while London slid by 1.5%. The south-west fell 2% and the north declined by 1.5%. Areas of the country that continue to grow include East Anglia, which saw a 2% rise, and Wales which grew by 1.1%.

Halifax cooled the top of the market in London and the south-east in July, when it warned that householders were feeling the pinch from higher utility bills and fears that interest rates were likely to rise.

Halifax and Nationwide figures, which heralded the fall in prices, are based on surveys showing how much homebuyers actually paid. Rightmove, by contrast, concentrates on asking prices. The lag between the two sets of figures is believed to result from sellers maintaining asking prices, despite deteriorating market conditions through July. They are only dropping prices once it becomes obvious buyers are unable to meet their expectations. Rightmove's commercial director, Miles Shipside, said: "Prices have passed their peak for 2006. The record price levels seen so far this year were driven by the south of the country.

"With that market cooling, and the signals from the Bank of England that interest rates may move up again, sellers may have to reduce their price expectations."

He said the decline in price growth was welcome news for homebuyers, many of whom were priced out of the market by the recent boom. Concern that the decline last month will snowball into a fully fledged slump looked misplaced. All the main lenders believe a rise in interest rates to 5% is unlikely to have a big impact. Mr Shipside added: "Activity in the property market virtually stopped dead after two successive rate rises in 2004 and took a year to recover. Prices are now cooling off and require no further intervention from the Bank."

Figures from the Council for Mortgage Lenders last week revealed record lending in July, with more than a half of borrowers protecting themselves from further rises by opting for fixed-rate loans.