House price downturn gathers pace

House prices fell by 2.4 per cent in May, providing further evidence the property market downturn is gathering pace.

The cost of a home now stands at an average of £184,111, Britain's biggest mortgage-lender Halifax said, meaning prices have now fallen at their fastest rate of decline since 1993 - by almost 4 per cent during the past year.

The average home now costs 6.8 per cent less than it did at the beginning of the year, with prices falling in four of the past five months, while property values are 9.4 per cent lower than at their peak in August last year.

On an annual basis house prices have fallen by 3.8 per cent since May last year, the biggest year-on-year drop since April 1993.

Martin Ellis, Halifax chief economist, said: "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. These factors have curbed housing demand."

But the group stressed that the price falls needed to be seen in the context of the strong house price gains experienced in recent years, with the cost of a home soaring by 79 per cent during the five years to August 2007 - an average rise of £88,000.

Halifax added that it continued to expect high employment levels, low interest rates and a shortage of new homes being built to support housing valuations.

The latest figures are in line with ones reported by Nationwide Building Society last week, which showed house prices fell by a record 2.5 per cent during May, prompting warnings that the market could be heading for a deep and prolonged correction.

The housing market is unlikely to receive a boost from the Bank of England's Monetary Policy Committee later, with interest rates widely expected to be kept on hold at 5 per cent due to inflationary pressures.

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