UK home prices 'fell 2.4% in May' - but rose 79% between August 2002 and August 2007

UK home prices 'fell 2.4% in May'

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.

Prices fell by 3.8% from a year earlier, it said. That pushed the price of the average home down to £184,111.

The Bank of England is due to announce its latest interest rate decision at midday, and is widely expected to leave its main interest rate on hold at 5%.

Despite signs that the UK economy and consumer spending are slowing, the Bank is worried about the rate of inflation.

Spending squeeze

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.

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

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.

However, the Halifax said that May's figures should be seen in the context of the rapid rises seen in recent years.

"The average UK house price rose by more than £88,000, or 79%, between August 2002 and August 2007," said Halifax chief economist Martin Ellis.

He blamed the falling prices on the reduced availability of mortgages and a squeeze on spending power.

Average earnings rose by 4% in the year to March, much less than fuel prices, which rose 9%, and food prices, which rose 7%.

"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."

Tougher times?

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.