Typical home now costs 1.4% less than it did just six months ago

House prices plunged over the past year as buyers stayed away from the market, figures from a leading lender have shown.

Homes lost 4.2 per cent of their value during the past year, based on average prices during the three months to the end of May, according to the Halifax.

It was the biggest annual drop recorded since October 2009 and left the average UK home costing 160,519. Homes also saw a fall of about 1.2 per cent of their value in the three months to May this year.

The typical home now costs 1.4 per cent less than it did in December last year, although prices edged ahead by 0.1 per cent during May itself, following a steep 1.4 per cent drop in April.

Martin Ellis, Halifax housing economist, said: "Low earnings growth, higher taxes and relatively high inflation are all putting pressure on household finances.

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

The number of properties sold in the first five months of 2011 was 5 per cent lower than in the same period last year - 279,000 against 293,000 - according to the latest figures from HM Revenue and Customs.