The Bank of England kept interest rates on hold at 5.25 per cent yesterday despite new figures showing that house prices fell last month.

The average house price fell 0.3 per cent in February to £196,649, according to Halifax, Britain's biggest mortgage lender. This cut the annual rate of house price inflation from 4.5 per cent to 4.2 per cent, the lowest rate of growth since October 2005.

Halifax forecasts that house prices will stabilise this year. Martin Ellis, its chief economist, said: “While the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices.”

Halifax says that it expects the Bank to cut interest rates twice more this year.

However, some experts predict that tightening of lending criteria by mortgage lenders could exacerbate the slide in prices. Banks and building societies, which are finding it increasingly difficult to secure funding for new mortgages in the wake of the credit crunch, have become much more careful about home-loan deals.

Last week Cheltenham & Gloucester stopped offering mortgage deals to home buyers lacking a 10 per cent deposit. Alliance & Leicester and Britannia Building Society have a similar policy.

Lenders, in order to boost margins, have also been raising the interest rates they charge. Abbey is set to raise rates on its fixed-rate deals by up to 0.2 percentage points from Monday despite the Bank's decision to keep rates on hold yesterday.

Howard Archer, of Global Insight, an economics consultancy, said: “The housing market clearly remains under substantial pressure from elevated affordability constraints and tighter lending practices.”

Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, said: “We see little reason for this pattern to be reversed in the near term. Indeed, survey evidence suggesting that companies may be starting to cut back on recruitment could exacerbate the weakness in property prices over the coming months.”

Figures this week from the Recruitment and Employment Confederation and KPMG, the accountant, showed that the number of permanent staff recruited by companies fell last month for the first time in nearly five years.

Nationwide Building Society has already said that house prices fell last month for a fourth month in succession, dropping by 0.5 per cent.