British house prices fell by 2 per cent between May and June, above expectations of a 1 per cent decline, adding to growing evidence the slowdown in the housing market is gathering pace.

According to Halifax, the UK's largest mortgage lender, house prices fell by 6.1 per cent year-on-year in the three months to June - the highest level since March 1993 and up from 3.8 per cent in the year to May.

The average price of a home is now £180,344, nearly 10 per cent lower than when house prices peaked in August last year, raising the spectre of negative equity of tens of thousands of homeowners who bought a home last year with little or no deposit.

However, Halifax said today that the average UK house price remains 2 per cent higher than in June two years ago and more than 10 per cent higher than in June 2005, indicating that the British housing sector still has some way to go before it reaches the bottom of the cycle.

Prices are being dragged down by a lack of activity in the market. First-time buyers without a hefty deposit can not get a mortgage, and sellers are being forced to cut their asking prices to secure a sale.

This morning, Barratt Developments became the latest housebuilder to release dire sales figures and announce 1,200 job cuts, as conditions in the mortgage market continue to tighten and make it more difficult for borrowers to secure home loans.

Later today, the Bank of England's Monetary Policy Committee will announce this month's decision on interest rates, when it is widely expected to keep the borrowing cost on hold at 5 per cent.

Howard Archer, chief UK and European economist at Global Insight, said: "We see extended downward pressure on house prices coming from serious buyer affordability constraints, limited and more expensive mortgages available due to ongoing tight lending conditions, a very weak economic outlook and little likelihood that the Bank of England will cut interest rates any time soon.

"Indeed, it is very possible that the Bank of England's next move could be to raise interest rates, which would clearly be very bad news for the housing market."

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