The housing market has ‘run out of steam’ with prices falling by 1.6% in August, according to property website Rightmove’s August index out today.

In the report Rightmove said the average asking price for a home in August dropped by £3,540, with London suffering its first fall since December.

The asking price for the average house fell to £214,040 in August, giving an annual growth rate of 9%, Rightmove 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 survey, which measured asking prices of properties put on sale by estate agents in the five weeks to August 12, is the first to provide a snapshot of market movement since the Bank of England raised interest rates at the start of the month. Rightmove said the annual rise in prices slowed from 10.6% in July to 9%.

The turnaround in house price growth has already been reported by others including Nationwide and Halifax, but their surveys are based upon prices actually paid rather than asking prices and so are too old to reflect the rate rise.

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. 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."

Miles Shipside said the decline in price growth was welcome news for homebuyers, many of whom were priced out of the market by the recent boom. He 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."