The UK’s biggest mortgage lender, HBOS, has forecast that UK house prices are set to fall by 9% this year.The banking group, which owns the Halifax, had earlier predicted that the decline would be less severe.

In a trading update, HBOS said the housing market remained “subdued” and the number of transactions this year would be down by 45% on 2007’s level. Its comments came ahead the launch of its rights issue through which it is aiming to raise £4bn from shareholders.

In February, HBOS said house prices would be “flat” in 2008. Then, in April, the Halifax house price survey predicted “a mid single digit percentage decline”. Figures last week from the Nationwide building society suggested that house prices were down by 4.7% in the first five months of the year, and by 3.2% in the past three months.

HBOS said that falling house prices meant it would have to write off more of its loan book as potential bad debts - and said it was also seeing a rise in mortgage arrears levels.