Bank holds rates at 5% despite biggest fall in house prices since 1993

The Bank of England today held interest rates at 5 per cent despite growing pressure  to ease the financial burden on millions of families.

As expected the rate was kept on hold in a bid to combat soaring inflation.

The decision comes despite new figures out today which show that house prices have fallen by nearly 4% during the past year, their fastest rate of decline since 1993.

Britain's biggest mortgage lender, Halifax, said the cost of a home slipped by a further 2.4% during May to stand at an average of £184,111.

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

The average home now costs 6.8% 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% lower than at their peak in August last year.

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% 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% during May, prompting warnings that the market could be heading for a deep and prolonged correction.

The number of new mortgages approved for house purchase also fell by 49% during April compared with a year earlier, according to the Bank of England, while the Royal Institution of Chartered Surveyors said the number of new buyers in the market dropped for the 17th month in a row in April to a record low.

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

Howard Archer, chief UK and European economist at Global Insight, said: "The latest data on the housing market are undeniably alarming.

'Clearly, the downward pressure on house prices coming from stretched buyer affordability and tight lending conditions is now biting hard.'

He added that Global Insight now expects house prices to fall by 12% during both 2008 and 2009.