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A 10.9% fall over the year to August has dragged UK house prices back down to the level they were at in February 2006, according to the Halifax's latest house price index.

The lender predicted a continuation of 鈥渃hallenging鈥� market conditions but said that homebuyers outside the South-east would benefit from the new stamp duty reprieve, which it welcomed.

A 1.8% monthly price fall in August, on the heels of similar falls in June (1.7%) and July (1.9%), left the average UK home priced just 拢174,178.

However, the Halifax said that despite continuing pressure on mortgage lending from the credit crunch, the UK housing market is underpinned by increasing employment rates and low interest rates.

Martin Ellis, chief economist at the Halifax, said: "A solid labour market, low interest rates and a shortage of new houses continue to support the market. The pressure on householders' income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.

鈥淭his week's announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south east of England. Market conditions, however, will remain challenging."

The Bank of England is due to announce today whether interests will remain on hold or change.