House price fall shock

Britain's largest mortgage lender today reported the biggest drop in house prices for four years.

This was the largest decline since October 2000. The yearon-year rate of increase slowed to 18.5 per cent - the first time it has been below 20 per cent for six months.

The news, which will reinforce expectations the Bank of England's monetary policy committee will hold interest rates at 4.75 per cent at its meeting today, comes a week after mortgage rival Nationwide reported the first dip in prices for three years.

It also follows recent data suggesting the long-running housing boom has run out of steam and prices have started to slide.

This has led some analysts to warn the market could be on the brink of a Nineties-style crash. However, most experts believe it remains on track for a controlled slowdown followed by a period of stagnation.

Halifax chief economist Martin Ellis said recent price movements confirmed that the Bank's five rate rises since last November had taken impetus away from housing demand, while first-time buyers continued to be held back by affordability constraints.

"The housing market seems to be moving into a slowdown following the period of strong growth in 2003 and 2004," Mr Ellis said. "The rises and falls we have seen in prices in recent months are part of the ebb and flow of the market as it finds a new base."

October's fall follows a 1.3 per cent rise in September and a 0.5 fall cent fall in August. Mr Ellis added: "We expect house price growth to continue to moderate into 2005, but market fundamentals remain sound.

"Economic growth remains above its long-term average rate and employment and incomes continue to rise. Supply constraints, especially in the south of England, will also underpin the market."

The report highlighted the plight of first-time buyers who accounted for just 28 per cent of new mortgages in the third quarter of the year, well below the long-term average of 44 per cent. However, it added there were tentative signs that pressures on them may ease with the ratio of prices to earnings starting to fall.