New figures from the Halifax show that the five rises in interest rates since November 2003 are dampening demand for houses, the mortgage lender said today. House prices have increased by just 1.8% during the past three months, compared with the 6.5% rise recorded in the preceding three months.

However, in spite of the drop, the Halifax insists that the fall is consistent with a moderating market, and that this was, in fact, the tenth monthly fall in the last five years, a period when prices in the UK have more than doubled.

?Occasional monthly falls are part of the normal fluctuations in the housing market, even during periods when the market is very strong,? said Martin Ellis, Halifax Chief Economist.

According to the Halifax, several other indicators show that the market is beginning to cool, for example the increase in stock of unsold properties, the decreased buyer activity reported by RICS, and the decreasing demand for mortgages reported by the Bank of England.

However activity still remains high despite these recent signs of weakening, and the strong economy, coupled with ongoing housing supply shortages, should underpin housing demand, the lender said.

?We continue to expect house price inflation to slow gradually over the remainder of 2004 and into next year as higher interest rates and the increasing difficulties faced by potential first-time buyers in entering the market curb housing demand,? commented Mr Ellis.