House prices fall for a second month as high interest rates hit

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The average cost of a home in England and Wales dropped by 0.2 per cent to £175,700, according to housing information group Hometrack.

The fall, which followed a drop of 0.1 per cent in October, helped to slow the annual rate of house price growth to just 3.6 per cent - the lowest level since July last year.

The group said prices fell across 20 per cent of postcode districts, especially in southern England, where demand has slowed the most. Halifax and property website Rightmove have warned house prices are likely to fall even further.

Richard Donnell, Hometrack's director of research, said: "Continuing focus on the fall- out from the credit squeeze, along with high interest rates, is resulting in widespread-caution among homeowners, the majority of whom do not need to move and who are sitting back until the outlook becomes clearer.

"As a result, the Christmas slowdown looks to have started early but underlying conditions remain weak."

It has also emerged the City is banking on UK house prices falling by 7.5 per cent in 2008.

The predictions are based on tradeable derivatives contracts, which are used for future of forward housing.

Meanwhile, the average worker will see a pay increase of just over 3 per cent next year, a report has warned.

Consultants Mercer said the figure was half that predicted for many other countries.

In India, salaries are expected to rise 14 per cent.