British house prices fell for a sixth month running in July to an average of £177,351 - a price in line with the average in June 2006.

According to HBOS, Britain's biggest mortgage lender, properties are changing hands for 11 per cent less than the average £199,600 that they were at the last peak in August 2007.

The rate of decline is now sharper than in the last housing slump in the early 1990s.

According to the Halifax House Price Index released today, prices fell 1.7 per cent in July to a UK average of £177, 351. The survey fits with recent data from rival Nationwide, which found also found that prices were 1.7 per cent lower in July.

Last month was the fourth in a row in which price falls were at least 1.5 per cent, bringing the annual rate in the July quarter to 8.8 per cent - a steeper decline than the 8.5 per cent the market had expected.

Suren Thiru, the Halifax economist, said the current strain on household income from rising prices and higher hurdles to obtain mortgage finance as a result of the credit crunch was preventing potential housebuyers’ ability to enter the market and consequently depressing prices.

Recent Bank of England data showed the number of mortgages approved in the second quarter was 60 per cent lower than in the same period of 2007.

Halifax pointed out in an attempt to put the current gloom in perspective that the average house price in July was £44,980 higher than in July 2003, and £104,888 or 145% higher than a decade ago.

The rate of decline over the month was also less than the 1.9 per cent fall in June and 2.5 per cent in May.

Howard Archer, economist at Global Insight, said prices would continue to deteriorate in 2008. "It seems odds-on that house prices will continue to head rapidly south, given that the Bank of England reported extremely low mortgage approvals for house purchases in June, while latest survey evidence shows that house sales are depressed, buyer interest is weak, it is taking longer to sell a house, and sellers are achieving a falling percentage of their asking price," he said.

He said potential buyers were being kept away by the grim economic outlook and inflation pressures as well as the rising cost of finance and higher deposit levels - a particular problem for first-time buyers.

"It seems unlikely that the Bank of England will cut interest rates in the near term at least. Indeed, it is 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," he said.

"Very negative housing market sentiment also heightens the risk that house prices will fall sharply over the next couple of years", he added.

Speculation that the Government might defer or suspend stamp duty could keep more people out of the market in the short term, he said.

Global Insight today forecast UK house prices to fall by 15 per cent this year and 12 per cent in 2009 to a low of £140,104 in 2010.

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