Halifax records drop in house prices

Britain's biggest mortgage lender today added to mounting evidence that the housing boom is over, reporting the first drop in prices for two years.

The news follows a recent flurry of data suggesting the long-running housing boom has finally run out of steam, but it is the first time a major lender has reported an outright fall in prices.

Mortgage rival Nationwide said this week that house prices edged up by 0.1 per cent last month, the smallest increase since October 2001.

Meanwhile, the Bank of England said the number of loans approved for house purchase fell sharply in July.

Halifax chief economist Martin Ellis said: "House prices have increased by 1.8 per cent during the past three months. This is significantly below the 6.5 per cent rise recorded in the preceding three months, providing further evidence that the housing market is slowing in response to the recent series of interest rate increases."

But Halifax played down fears of a crash, saying the market remains on course for a steady slowdown, with house price inflation ending the year at 16 per cent. Record employment, historically low debt-servicing costs and supply shortages will continue to underpin the market.

Mr Ellis said: "Occasional monthly falls are part of the normal fluctuations in the market, even during periods when it is very strong."

The Bank has lifted interest rates five times since last November - from 3.5 per cent to 4.75 per cent - in a bid to cool the market. For a homeowner with a £100,000 mortgage, the increases have added about £70 to the monthly payment.

Economists were expecting rates to hit 5.25 per cent next year but said the cost of borrowing may now have peaked.

Howard Archer at consultancy Global Insight said: "With consumer spending also showing signs of moderating, there is a growing possibility the Bank of England could leave interest rates unchanged through the rest of this year."