House prices have dropped by a massive 2.5% this month, the Nationwide Building Society has announced.

The average British home lost almost £5,000 in value, leaving prices 4.4% lower than this time last year.

The price of a typical house is now £173,583, £8,000 less than 2007.

Commenting on the figures, Fionnuala Earley, Nationwide's Chief Economist, said: "A further fall in house prices in May was not unexpected, and for most of those not wishing to move house or borrow money secured on it, the fall in value of their home is likely to be of limited concern in the short term. While the value of our homes is important as security, the most recent falls in prices for most borrowers will have simply eroded some of the large gains that were made over the last few years. While prices have fallen by 4.4% since May 2007, they still remain 5% higher than in May 2006 and 10% higher than in May 2005."

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Earley also blamed the credit crunch for the decline in house prices.

She said: "Tighter credit conditions in the market at present are making it more difficult for borrowers to obtain loans at higher loan-to-value ratios. While this is frustrating for those in that position, more stringent underwriting criteria should ultimately lead to fewer overstretched borrowers and hence a more stable and sustainable market."

(CD/NS)