The housing gloom deepened today as the Halifax said prices are lower than they were a year ago for the first time in more than 12 years.

The mortgage lender said the value of the average house has dropped 0.9% since April last year to £189,027 - the first fall since February 1996. Following similarly grim news from rival Nationwide, it was yet more proof that the property boom of recent years is well and truly over.

Halifax chief economist Martin Ellis said: "We are expecting a modest decline in house prices in 2008, and there is a strong chance that will continue into 2009. House prices are high in relation to earnings so there is a problem for people entering the market, and there is a general squeeze on spending as well."

The warning came after Nationwide reported its first annual decline in house prices since 1996. It said on Wednesday that prices are now 1% lower than a year ago.

Today's news piled further pressure on the Bank of England to cut interest rates next week to ease lending conditions and breathe life into the ailing market. Rates in America were cut by the Federal Reserve from 2.25% to 2% on Wednesday as the US battles recession-but the Bank seems reluctant to follow suit because of the threat of rising inflation.

Although economists forecast UK rates will fall this year, opinion is split over whether the next cut will come next Thursday or in June.

Two of the Bank's monetary policy committee (MPC), Andrew Sentance and Tim Besley, voted against April's rate cut from 5.25% to 5%, signalling that policymakers are split on how to
deal with the crisis. The Bank has cut rates from 5.75% since December but mortgage costs have remained high and hit demand for property.

Lenders have raised mortgage rates and withdrawn their best offers as a result of the credit crunch, making it almost impossible for first-time buyers to get on the housing ladder.

Philip Shaw of Investec said the Bank has an "aversion to back-to-back moves", and that the split on the MPC makes a May rate cut unlikely. He added: "Even so, we are still rattled by some weak news coming through from the economy, especially the housing market."

Jonathan Loynes of Capital Economics said: "Disagreement on the MPC has intensified between those members who are more worried about the near-term inflation outlook and those whose concerns centre on the weakening growth prospects."

BUILDERS SUFFER
The construction industry has had its worst month for almost a decade as the faltering economy takes its toll.

Figures from the Chartered Institute of Purchasing & Supply today gave a reading of 46.1 for April, down from 47.2 in March and below the 50 mark that represents growth. It was the weakest figure since October 1998.

Roy Ayliffe, CIPS' director of professional practice, said: "Worryingly, growth in the UK construction sector has fallen at the sharpest rate in almost nine-and-a-half years as purchasing managers report significantly lower levels of output and new orders. In particular, housing and commercial have suffered the worst."