UK house prices slip in June

British house prices fell at their sharpest pace in more than five years in June, the nation's largest mortgage lender said today, predicting muted demand in coming months.

Halifax said annual house price inflation rose to a 15-month high of 9.4%, with the average price at £176,509. But on a monthly basis prices fell 1.2%, the biggest drop since October 2000, in a sign the property market was settling down after some strong jumps at the start of this year.

"We are expecting the market to tick along in the second half of the year and not do anything spectacular," said Martin Ellis, chief economist at Halifax. "It will be a little less interesting."

Halifax predicted house prices would rise a modest 3% over 2006 and expected rising utility and council tax bills to constrain demand. Still, the lender said the market had sound fundamentals thanks to high employment and low interest rates.

Economists said some potential homebuyers were being put off by talk of a possible rise in UK borrowing costs as central banks elsewhere raise rates to stem inflation. "House buyers will be concerned by the very real possibility that interest rates could increase before the end of the year, as this would further stretch affordability," said Howard Archer, economist at research group Global Insight.