THE Bank of England kept interest rates on hold at 5.75% last week, but the chances of a cut rose after Halifax revealed that house prices fell by 0.6% last month – the first monthly fall since December 2006.

Economists believe there is a one-in-three chance of an annual fall in house prices in 2008, according to a poll by Reuters.

City economists expect property prices to rise by just 2.2% next year, according to the survey.

The cost of renting a house in England and Wales is now cheaper than buying it with a mortgage, according to market analysts Hometrack. Private rents last year were two-thirds the cost of a 100% mortgage on a two- or three-bedroom house, for a young household on average incomes.

For many years, renting was thought to be just as expensive as buying. That has been changed by the rapid rise in house prices.

Peter Dixon, UK economist at Commerzbank, said: “Housing affordability is less attractive today than at any time since the early 1990s. Without first-time buyers entering the market, there will be less impetus to drive prices higher.”

A separate survey from Nationwide, revealed the market is already weak in many areas. The national average is boosted by the continued strength of the market in Northern Ireland, London and the southeast.

Prices in the capital rose 3.4% in the past three months. In Wales, on the other hand, the average house price dropped by 0.6% in the last quarter, while barely changing in the east and west Midlands.