The cost of the average home fell for the first time in eight months in February, the country’s largest building society reported today, casting further doubt on the sustainability of the recent recovery in house prices.

Nationwide said that prices fell 0.2 per cent in February, taking the cost of the average home to £158,573. It was the first fall in prices since July last year and follows strong gains in December and January.

The pattern of a strong rise followed by a slight fall is similar to one highlighted by Halifax, which reported that house prices fell by 0.4 per cent in January after a rise of 0.9 per cent in December. Halifax said a mixed pattern of rises in some months followed by falls in others was typical of a slow market.

Despite February’s fall in prices, Nationwide said the trend over last six months was still strong, reducing the likelihood that the Bank of England’s rate-setting Monetary Policy Committee would cut interest rates in the coming months.

In February, the Bank kept the cost of borrowing unchanged at 4.5 per cent for the fifth month running despite a weak economy on fears that lower rates might further stimulate the housing market, increasing the risk of a future house price crash.

Greg Fuzesi, the senior economist at Nationwide, said: "As we enter the all-important house buying season in March, the prospects for both house prices and interest rate policy will become clearer.

"It will also show whether February’s fall is just a pause before the spring rush or the first sign of weak market fundamentals weighing down on prices.

Mr Fuzesi expects continuing weakness in the economy to prevent significant gains in 2006.

"There are two reasons why the pickup in activity this spring may not turn out to be strong. Firstly, many first-time buyers continue to be priced out of the market. Secondly, uncertainty about the strength of the economy may lead to the delay of some house purchase decisions.

"A complicating factor is that buy-to-let investors seem to have been behind some of the increase in recent activity. This situation makes forecasts more difficult."

Howard Archer, chief UK and European economist at Global Insight, said the Nationwide data supported the view that house prices would be unable to sustain sharp gains for some time to come.

"We believe that the upside for house prices will be limited by stretched affordability ratios on many measures, elevated debt levels and a further weakening in the labour market.

Indeed, affordability will suffer over the coming months from moderate earnings growth as well as markedly increased utility bills and a further increase in council tax.

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