House prices fall by 8.8%

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The drop - the biggest since December 1992 - compares to a 6.1% year-on-year fall seen in June, Halifax said.

It came after the average property price slid 1.7% in July to stand at £177,351, leaving average prices at the same level they were in June 2006.

The monthly fall of 1.7% represented a slowdown from the falls seen in May and June, which were 2.5% and 1.9% respectively. But it is the fourth month running that house prices have dropped more than 1.5%.

They have now fallen in nine of the past 11 months, but they are still 34% higher than five years ago and 145% higher than a decade ago.

The figures are in line with those reported by Nationwide Building Society last week, which showed that house prices fell for the ninth month in a row during July, dropping by 1.7%.

At the same time annual house price growth fell to minus 8.1%, the lowest level since the index was launched in 1991. All the major house price indexes are now showing falls, with economists predicting prices will drop by up to 12% this year.

Despite the current turmoil, Halifax said the housing market continued to be underpinned by strong fundamentals.

Economist Suren Thiru said pressure on householders' income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, was constraining potential house buyers' ability to enter the market.

But the economist added: "A solid labour market, low interest rates and a shortage of new houses continue to support the market. The labour market is the key driver of the housing market and the number of people in employment is at a record high."