Halifax: House prices drop 4.2% year-on-year

Annual house prices fell 4.2% in May, as almost static monthly growth saw prices rise just 0.1%, according to Halifax.

The slight monthly increase did little to reverse April's drop of 1.4%. Prices in the three months to May were 1.2% lower than the previous three months, unchanged from April.

This means the average house price is now £160,519.

Martin Ellis, housing economist at Halifax, said: "House prices continue to drift modestly downwards as measured by the underlying trend.

"Low earnings growth, higher taxes and relatively high inflation are all putting pressure on household finances. Confidence is also weak as a result of uncertainty about the economic and employment outlook. These factors are probably constraining housing demand and applying some downward pressure on prices."

Halifax noted there has been a modest improvement in the balance between supply and demand, with RICS' April survey showing the ration of house sales to unsold stock rose slightly for the third consecutive month.

However, although house sales remain subdued, there has been a tentative improvement in activity and slowly improving economy growth.

Ellis said: "Overall, we expect a moderate improvement in the economy during the remainder of 2011, which combined with continuing low interest rates, is likely to support housing demand. This should prevent a further marked fall in prices and help to stabilise property values later in the year."