House prices rose at their fastest annual pace in two years in September, a survey showed on Monday, indicating a Bank of England rate rise in August has done little to slow the property market.

Property consultant Hometrack said house prices rose 4.3 percent in September compared with a year earlier, the fastest annual rate since September 2004.

The strong reading concurred with other robust house market surveys and weighed on interest rate and gilt future contracts with analysts saying the data reinforced expectations of a further rise in borrowing costs this year.

It is well accepted that the housing market is powering ahead, but the new news is that the strength is persisting for so long, said Alan Clarke, an economist at BNP Paribas.

Clearly the case for higher interest rates, given the strength of the housing market, is still intact.

The Bank will announce its latest interest rate decision on Thursday, having surprised markets with a hike in August to 4.75 percent but freezing borrowing costs last month.

Many economists expect rates to rise in November, but some say policymakers may feel it necessary to move this week given strong inflation and data depicting a robust economy.

Hometrack said a lack of homes coming onto the market had fuelled the increase in its latest reading.

Despite the rate increase in August, house prices continue to rise as we start the autumn selling season, said Richard Donnell, director of research at Hometrack.

Prices have risen in nine out of 10 regions over September, largely on the back of a 0.4 percent decline in the volume of homes available for sale over the month.

The imbalance between demand and supply was most out of kilter in London and the South East where house prices continued to rise at rates well above the national average.

Nevertheless, Hometrack noted there were signs London's property boom may be starting to lose momentum with the proportion of asking prices being achieved by agents falling in September for the third month in a row.

Hometrack figures, which are not adjusted to account for seasonal variations, show house prices rose 0.4 percent month on month, the same as August. This lifted the average price of a home to 167,900 pounds.

Inflation BNP Paribas