The country's largest mortgage lender said this morning that house prices fell 1.1% in October, the steepest rate of decline since October 2000, but after a revised 1.3% gain in the month before.

Over the past year, house prices have increased by 18.5% with the annual rate of growth now below 20% for the first time in six months, said Halifax

On a quarterly basis, houses prices fell by 0.4% between July and October. This is the first fall on a three monthly basis since the last quarter 2000.

There are tentative signs that the ratio of house prices to earnings may have peaked at 5.63 in July with a slight decrease to 5.57 in August (the latest available figure). The recent series of interest rate increases have raised mortgage payments as a percentage of earnings from 14% to 19% for new borrowers over the past year. This remains well below the peak of 34% in 1990, however.

Other indicators of the housing market confirm a softening in housing market activity. Data from the Bank of England and the Council of Mortgage Lenders points to a moderation in home lending, while surveys of estate agents point to some decrease in buyer interest. Figures from Halifax Estate Agents show a fall in the number of sales agreed over the past few months.

Housing market fundamentals remain sound, said the Halifax. Interest rates, while they have risen, seem likely to peak near current levels. Employment and household incomes, two very important drivers of the housing market, continue to grow. Additionally, supply constraints, especially in the south of England, will also underpin the market.

Commenting, Martin Ellis, Chief Economist, said: "The housing market seems to be moving into a slowdown following the period of strong growth in 2003 and early 2004. The rises and falls we have seen in prices in recent months are part of the ebb and flow of the market as it finds a new base."

"October's 1.1% fall follows a 1.3% rise in September. Recent price movements confirm that the Bank of England's rate hikes have taken impetus away from housing demand while first-time buyers continue to be held back by affordability constraints."

"We expect house price growth to continue to moderate into 2005 as the Bank of England's rate increases and first time buyer affordability constraints dampen demand. Market fundamentals remain sound. Interest rates, while they have risen, seem likely to peak close to current levels."

"Economic growth remains above its long-term average rate and employment and incomes continue to rise."

"Supply constraints, especially in the south of England, will also underpin the market. The rapid rise in house prices over the past few years has resulted in a substantial increase in the amount of housing equity held by homeowners. We estimate that the value of housing assets exceeded the value of outstanding mortgage balances by £2,200 billion at the end of 2003. This represented a more than doubling in housing equity since 1998 and was well above the £900bn at the end of 1989."

"Buyers have been putting down bigger deposits than in previous cycles. 83% of all borrowers took out a mortgage of less than 90% of the house price in the third quarter of 2004, according to the latest figures from the CML, compared with 56% in 1989 and 1990."