House prices fell 2% in June according to a report by the UK’s biggest mortgage lender, the Halifax.

But the drop means house prices are now 6.1% lower than they were a year ago and have reached the same level as August 2006. According to the new figures, the average UK house cost £180,344 in June on a seasonally adjusted basis.

Prices had previously fallen by 2.5% in May and figures from Nationwide suggest a similar level of decline, reporting a 6.3% drop over the past twelve months. Halifax says the slowing economy, a tightening of credit conditions for mortgages in addition to the rapidly rising cost of food and fuel have reduced demand for housing.

The UK economy is expected to fare badly over the coming months, with many now expecting a recession, and house prices are likely to fall further. A leaked Government document revealed Ministers expect prices to fall by at least 10% in 2008, and Capital Economics has forecast a 35% drop by 2010.

The Halifax also revealed the number of first time buyers entering the market is the lowest since 1980, at an estimated 300,000 in 2007, which could have further implications for housing transactions.

Recent moves by lenders to increase minimum deposit sizes have increased upfront costs for first time buyers who used to be able to raise 100% mortgages.