The average UK house now costs £218,151. Photo: Getty/Christopher Furlong

The price of the average property fell by £724 between April and May, a drop of 0.3%, according to government figures published today.

The Communities and Local Government department said UK house prices grew by 3.7% in the year to May 2008, compared with 4.9% in the year to April 2008.

Prices grew by 0.5% in the quarter to the end of May.

The statistics, which include data on mortgage completions, show the average house now costs £218,151.

According to communities department prices rose in London by 7.8% in the year to May, compared with 7.5% in April.

The figures show a 26-month low in house price rises, down from a peak of 12.3% in July 2007. Howard Archer, UK and European economist at Global Insight, said he expected a fall of 12% in house prices between 2008 and 2009.

"The data do little to dilute the serious concerns over the housing market, even though it shows house prices still rising year-on-year," he said.

"Severe downward pressure on house prices continues to come from very weak housing market activity, elevated affordability pressures on potential house buyers, and very tight credit conditions."

He added: "The marked deterioration in sentiment over the housing market also heightens the risk that house prices will fall sharply over the next couple of years.

"On top of this unemployment is now rising, which along with a substantial number of homeowners having to remortgage at a higher rate, is increasing the likelihood that people will have to sell their house for 'distressed' reasons."

Mortgage lending

Meanwhile, the Council of Mortgage Lenders (CML) also announced a slight increase in lending between April and May, although figures were still down 44% on this time last year.

Loans for house purchases rose in volume by 4% to 52,700, and by 2% in value to £7.9bn.

There was a slight increase in loans for first-time buyers between April and May, up 4% to 19,200. However, this represented a drop of 41% compared with May 2007.

The number of mortgages for movers also rose by 4%, but again the figures showed a huge fall compared with last year with 46% fewer mortgages taken out.

There were 14% fewer remortgages in May than in April, 23% fewer than were taken out in May 2007.

The CML said it expected the figures to continue to fall in the coming months.

Although fixed-rate mortgages now come with interest rates of more than 7% there has been a rise in their popularity, the CML said. Two-thirds of mortgages taken out in May were fixed-rate deals.

CML director general, Michael Coogan, said: "The growing popularity of fixed-rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments."