London house price fever starts to cool

Property prices in London have stalled in the last month following the recent interest rate rises and could begin to fall back after the latest increase, property experts said yesterday.

They claimed that buyers were being deterred from purchasing homes by rising mortgage costs.

The Bank of England has put up rates four times in the past eight months to 4.5% and is expected to push them up to 5% by the end of the year.

The experts' estimates followed moves by Britain's biggest building society, Nationwide, to push up its mortgage rates in line with the latest rise in bank base rates.

Nationwide said it was increasing its base mortgage rate bya quarter-point to 5.74% from July 1. The building society said the increase in borrowing costs would leave its base mortgage rate about three-quarters of a point lower than most rivals'.

Cheltenham & Gloucester, the mortgage arm of Lloyds TSB, increased its mortgage rates by a quarter-point. C&G said its standard variable rate would rise to 6.5% from June 14 for new customers and from July 1 for existing ones. Unlike Nationwide, it did not say whether savings rates would increase. Nationwide said all savings rates would rise by at least 0.2%.

Charcol, Britain's biggest mortgage broker, said the rise in base rates from 3.5% to 4.5% over the past eight months had begun to deter housebuyers in London. Senior adviser Ray Boulger said: "I think we are already seeing the rate rises having an effect in London, and it will begin to have an impact outside London as rates continue to move up."