House prices fall again

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Building society Nationwide said UK house prices this month dropped 0.5% compared to November.

The three-month on three-month rate of growth - a smoother indication of house price trends according to the lender - also fell from 1.4% last month to 0.9% in December, the lowest level for two years.

Nationwide said annual house price inflation fell back to a 19-month low of 4.8% in December, down from 6.9% in November and a peak of 11.1% in June.

The lender said the average price of a UK house was now £182,080 - up £8,334 on the year.

Fionnuala Earley, chief economist at Nationwide, said the housing market had weakened significantly towards the end of this year.

She said: "Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year."

Howard Archer, economist at Global Insight, said the news would maintain pressure on the Bank of England for an interest rate cut in the New Year.

He said: "It is clear that the housing market ended 2007 under mounting pressure from increased affordability pressures and tightening lending practices, and it looks set for further deterioration in 2008.

"The rising risk that the housing market could be headed for a sharp correction maintains pressure on the Bank of England to trim interest rates again early in 2008."