House prices suffer biggest quarterly fall in 12 years

The figures from Halifax, Britain's biggest mortgage lender, said that despite a surprise 1.3 per cent rise in prices last month after three successive months of falls, the overall picture remained one of cooldown.

Prices in the final quarter of the year were 0.8 per cent down on the previous quarter. This was the first quarterly drop since the second quarter of 2000.

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Annual house price inflation also continued to ease during December, dropping from 6.3% in November to 5.2%.

This is the the lowest level for two years and only the second year since 2001 that property prices have risen by less than the long-term average of 8%.

Overall, the average home in the UK ended 2007 costing around £11,759 more than it started it, at £197,039.

Halifax stressed that a mixed pattern of monthly price rises and price falls was normal for a subdued housing market, adding that December's rise was the biggest jump since February last year.

It expects house prices to be flat during 2008, but added that this should be seen in the context of rises of 182% during the past 10 years.

Martin Ellis, Halifax chief economist, said: "The housing market continued to slow in the final quarter of 2007 with prices slightly lower than in the preceding quarter.

"Higher mortgage repayments in response to the series of five interest rate increases between August 2006 and July 2007 and falling real earnings have put pressure on households' income, resulting in a slowdown in both house price growth and activity in recent months."

But he added that sound economic fundamentals and lower interest rates would support house prices during 2008.

The mortgage lender predicted prices would be flat this year and believes the Bank of England will cut interest rates at least twice.

The Bank's monetary policy committee makes its next decision on interest rates on Thursday and many economists predict a quarter-cut from their current level of 5.5 per cent.