House prices fall fastest rate 19 months - Telegraph.co.uk

"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."

But he said the group expected a "moderate improvement" in the economy during the rest of the year, and this, combined with ongoing low interest rates, should help to support housing demand.

He said: "This should prevent a further marked fall in prices and help to stabilise property values later in the year."

The monthly change was broadly in line with the figure reported by Nationwide for the same period, with the building society saying house prices edged ahead by 0.3 per cent during May, but it recorded a more modest annual decline of 1.2 per cent.

April was a difficult month for the housing market, as the long bank holiday weekends caused people to put their moving plans on hold.

The Bank of England reported a 4 per cent drop in the number of mortgages approved for house purchase during the month, and this fall in activity will have had a knock-on effect on completed sales during May.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The fact that Halifax reported that house prices could only rise fractionally in May after a particularly sharp drop in April reinforces our view that further weakness lies ahead in the face of ongoing muted housing activity and difficult economic fundamentals.

"We maintain the view that house prices are likely to end up declining by some 10 per cent overall by mid-2012 from their 2010 highs.

"This implies that they will fall by around 5 per cent to 8 per cent from current levels depending on which measure you take."