The Halifax Building Society said house prices fell by 1.6 per cent in May, bringing prices down to the level of a year ago.
Gary Marsh, an economist at the Halifax, had been expecting house prices to end the year 5 per cent higher. 'Recovery was taking place, but it has now stalled,' he said. 'We expect some ups and downs for the rest of the year, but price rises are unlikely to reach 5 per cent as we were predicting. They are more likely to be 2 to 3 per cent higher.'
John Wriglesworth, housing economist at stockbrokers UBS, has also halved his forecast for price rises in 1994 from 7 to 3.5 per cent. 'We are still in the foothills of a recovery. House prices are not going into freefall. Things will probably look brighter next month,' he said.
House prices fell in April by 0.3 per cent and then again in May, according to the Halifax. Much of the blame has been put on the tax rises, which had been known about since last November's Budget. But people were concerned abut the precise impact on their own pay packets.
In the early months of the year, the housing market was kicked into life by the low fixed-rate mortgages on offer. Once buyers saw fixed rates rising they were keen to complete deals and secure low-cost mortgage finance rather than haggle over prices.
James Barty, senior UK economist at Morgan Grenfell, said: 'There has been a clear slowdown in the housing market. The momentum at the end of last year seems to have disappeared.'
After the tax rises were announced in November he was predicting house price rises for 1994 of 3 per cent. 'I'm tempted to shave that back,' he said.
The Halifax prices are adjusted to take account of seasonal variations. Even before discounting the expected rises, prices fell by 0.8 per cent in May.
This compares with the Nationwide Building Society's unadjusted figure of a rise of 1.4 per cent in May.
David Parry, head of planning at Nationwide, said it was impossible to judge the market on one month's figures, 'but we are talking similar trends'.Reuse content