Page last updated at 14:42 GMT, Thursday, 5 June 2008 15:42 UK

UK home prices 'fell 2.4% in May'

Halifax house sign
Halifax says the falls should be seen in the context of huge recent rises

UK house prices dropped by 2.4% in May, according to a report by the Halifax, Britain's biggest mortgage lender.

That pushed prices 3.8% lower than a year ago and means that the price of the average home fell to 184,111.

The Bank of England said on Thursday it was leaving interest rates unchanged at 5%, despite calls from estate agents and construction firms for a cut.

Many mortgages have been withdrawn and available rates have risen in spite of three rate cuts since December.

Spending squeeze

The Halifax said the annual fall in prices was the biggest it had seen since 1993.

Graph of Halifax and Nationwide house price indices

If prices continue falling at the rate seen since the start of the year then they will fall by 16% over the course of 2008.

The Halifax's survey echoed the results of the latest study from the Nationwide building society, which reported a 2.5% fall in house prices during May.

And earlier this week, figures from the Bank of England showed the number of new mortgages being approved for house purchases in April hit the lowest level since the Bank began reporting the figures in 1993.

"The decline in prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability," said Halifax chief economist Martin Ellis.

He pointed out that average earnings rose by 4% in the year to March, much less than fuel prices, which rose 9%, and food prices, which rose 7%.

Tougher times?

The Halifax has already predicted that house prices will probably fall next year as well as in 2008.

The latest data on the housing market are undeniably alarming
Howard Archer, Global Insight

Over past weeks there has been increasing evidence that the UK economy is heading for a longer and sharper economic slowdown than many people first thought.

On Wednesday, the international think tank the Organisation for Economic Co-operation and Development (OECD) said the UK faced a significant downturn.

The OECD forecast that UK growth would slow to 1.8% this year, and to 1.4% in 2009.

It added that three factors were hurting the UK and global economy; weakening property markets, a global credit crisis and high commodity costs.

"The latest data on the housing market are undeniably alarming," said Howard Archer, chief economist at Global Insight.

"Clearly, the downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is now biting hard."

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