Gloomy house price survey adds to mortgage woes

A ''Sold'' sign stands in front of a home in an undated file photo. House price inflation in England and Wales fell to 9.6 percent in late August/early September from 12.8 percent in the prior survey, property Website Rightmove said on Friday.

LONDON (Reuters) - A survey pointing to a sharp slowdown in Britain's property market put further pressure on beleaguered mortgage lenders on Friday, dimming confidence in the country's economic outlook.

Coming hours after financial authorities stepped in to rescue ender Northern Rock NRK.L, the survey highlighted the potential nightmare scenario facing mortgage providers -- the combination of rising funding costs and falling house prices.

Property website Rightmove (RMV.L) said its monthly house price survey, conducted between August 12 and September 8, showed asking prices for homes in England and Wales were 2.6 percent lower than the previous month.

That pushed annual house price inflation down to 9.6 percent from 12.8 percent.

Sterling fell to 14-month lows against the euro at 69.01 pence as investors bet a slowing economy would force the Bank of England to cut interest rates next year.

Rightmove's figures are not adjusted for seasonal factors but they add to evidence suggesting the market is being hit by rising interest rates and the recent turmoil in world credit markets.

A survey from the Royal Institution of Chartered Surveyors this week showed British house prices fell last month for the first time in nearly two years as new buyer enquiries fell at their fastest pace since August 2004.

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A sharp housing slowdown would pile further pressure of the country's mortgage lenders, already struggling from paralysis in money markets that have lifted interbank lending rates to nine-year highs.

Shares in Northern Rock fell almost 30 percent after the lender issued a profit warning and was offered emergency funding from the Bank of England, the first time the central bank has acted as lender of last resort in this way since becoming independent in 1997.

Shares in housebuilders also fell sharply, with sector leaders skidding over 8 percent while Rightmove's share price was down almost 6 percent at 3:15 p.m..

Oliver Gilmartin, senior economist at the Royal Institution of Chartered Surveyors, said house price indices based on asking prices tended to lag the market during a slowdown and Rightmove's figures could even be understating the negative sentiment.

However, others noted August house price figures had been distorted by special factors and the market was not about to fall off a cliff.

Rightmove said the introduction of Home Information Packs -- new regulations on people selling houses with 4 or more bedrooms -- was partly to blame for the monthly decline as it led to a 41 percent decline in the number of these properties put up for sale.

"There is no flood of sellers to the market looking to bail out quickly because of financial distress," said Rightmove's commercial director Miles Shipside.

(Additional reporting by Fiona Shaikh and Miyoung Kim)