House price growth has dropped to the lowest level in five months - further proof that the property market has passed its peak.

The cost of the average property increased by 0.3 per cent in May according to Halifax figures released today. This was the third month in a row in which house price rises slowed and is a significant slowdown from the average monthly rise of 1.3 per cent recorded in the first four months of the year.

The annual rate of house price inflation also dropped to 10.6 per cent from a peak of 11.1 per cent in March. Halifax said that the interest rate rises contributed to the market cooling.

Commenting, Martin Ellis, Halifax chief economist, said: "Higher interest rates, the negative trend in real earnings growth and rising food prices are likely to bite increasingly on householders' finances over the coming months, curbing housing demand. House price inflation is expected to moderate as a result."

First-time buyers priced out

Houses will become completely unaffordable for first-time buyers unless many more are built, a national advisory unit says

• Reform of planning rules ‘vital’ to meet growth in demand

• How the mortgage market has changed

• The future of house prices: 10 times pay

Background

• Property prices grow at slowest rate in five months

• Buying a house 'will cost 10 times your income'

• How the mortgage market has changed

• First proof of decline in housing market

• Buy-to-let brigade could be the joker in pack

No one is suffering as much as first-time buyers

Lenders are getting more picky, yet property prices are refusing to fall far enough, fast enough

Background

• First proof of decline in housing market

• Fresh signs of cooling housing market

• House prices slow despite London surge

Buyer numbers fell for the fifth consecutive month in April with the pace of decline increasing. Mortgage approvals fell to 107,000 - their lowest level for 12 months in the same period - and were 16 per cent below the peak of 128,000 in November 2006.

The stock of unsold property on estate agents' books rose in April for the first time in six months, indicating a loosening in market conditions.

The Halifax report said that solid economic conditions and high employment had supported housing demand and pushed house prices up. The UK economy continued to grow at above its long-term average pace with GDP 2.9 per cent higher on an annual basis in 2007 Q1. The number of people in employment has risen by 93,000 over the past year.

The average cost of a UK property has risen by almost £19,000 in the past 12 months to £196,893.

David Stubbs, senior economist at the Royal Institute of Chartered Surveyors (RICS), said that the Halifax figures showed that a slowdown in the housing market was "well and truly underway". He said: "With mortgage rates continuing to rise, first time buyers are finding it increasingly difficult to afford the massive mortgages they now require to get on the ladder.

"Although the housing market will continue to slow in coming months, good economic conditions and a lack of homes for sale will continue to support prices and prevent the crash that some commentators continue to predict.

However, if interest rates were to rise to 6 per cent before the end of the year, a sharper slowdown and a difficult 2008 would be on the cards."

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

Times recommends

• Analysis: frustration for everyone - except investors
• Spanish property: why it's crunch time on the Costa del Sol
• Buy-to-let: professional investors cash in on the credit crunch