RISING interest rates and the Bank of England’s warnings over market prospects have successfully slowed house price inflation, according to the latest survey by the Royal Institution of Chartered Surveyors (RICS).

Average house price rises slowed in June to its lowest in ten months and the South East recorded small price falls for the first time since the Iraq war.

RICS South East director Trevor Hines said: “Two consecutive interest rate rises seem to be finally biting at the heels of the housing market.

“We have seen a gradual reduction in the number of buyers coming onto the market and a marginal increase in the number of sellers, causing many estate agents to feel less optimistic about price rises, however tight market conditions remain.

“Going forward, the housing market seems to be mirroring the wider economy – it may become less of a cycle of booms and busts and more a case of gentle rises and falls.

“The positive economic climate and growth in employment will provide a soft landing for future house price fluctuations.”

The number of new properties coming onto the market and the amount of unsold properties on estate agents’ books both showed a moderate increase, although stock levels remain low.

The number of people looking to buy fell sharply in June in all regions, indicating that warnings from the Bank of England over market prospects is having a negative impact.

The decline in the number of new buyer enquiries is the strongest recorded by RICS since March 2003, at the height of the uncertainty generated by the war in Iraq. However, at the end of last year and the beginning of 2004 the number of buyers on the market was particularly high.

Chartered surveyor estate agents’ confidence in price outlooks is fairly subdued for the next three months.

Prices in the South East are expected to decrease slightly, due to easing demand conditions, with buyer enquiries falling in June at their strongest pace in over a year. They remain confident that the number of sales will rise at a modest rate despite the drop in the number of buyers coming onto the market.