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8 January 2008

House price inflation fell sharply at the end of last year, according to the Halifax bank.

The country's biggest mortgage lender said prices were rising at an annual rate of just 5.2% in December, half the rate seen just three months earlier.

Although prices went up by 1.3% during December, the Halifax said that was the first time there had been an increase in the past four months.

This took the value of the average UK home to £197,039.

Subdued market

Since last summer the market has been going through a sharp slowdown under the impact of higher interest rates.

"This mixed pattern of monthly price rises and falls is a typical characteristic of a subdued market," said Martin Ellis, chief economist at the Halifax.

"Overall, the housing market continued to slow in the final quarter of 2007 with prices slightly lower than in the preceding quarter," he added.

The lender predicts that house prices will slow down even more this coming year.

It expects them to be flat over the course of 2008, and expects the Bank of England will cut interest rates twice in the next 12 months in response to the slowdown in the wider economy.

Malcolm Barr, an economist at the bank JPMorgan Chase, said: "We continue to be surprised at the speed in which momentum in house price gains has faded."

"That lenders have begun to cite the expectation of house price falls as a reason to tighten credit availability, and the data have moved to confirm those expectations, remains a significant worry," he added.


Even though the Bank cut interest rates in December, the housing market has been responding to a series of previous rate rises that started in the summer of 2006.

These, combined with the fact that houses had become increasingly unaffordable for many potential owners, choked off demand in the market by keeping out many potential first-time buyers.

The Halifax recently reported that there were just 300,000 first-time buyers last year, the lowest level since 1980.

Figures from the Council of Mortgage Lenders (CML) showed that, in November, first-time buyers who did take out a loan borrowed an average of 3.33 times their incomes.

That is the third month in a row that the income multiple of these borrowers has fallen, down from a record of 3.39 times income that was reported in July and August.

"Affordability in the mortgage market continued to show some resilience to tightening credit market conditions," said the CML's director general Michael Coogan.

"At a time of global market uncertainty, business levels in the mortgage market are holding up reasonably well in the UK despite funding constraints," he added.

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