UPDATE 2-UK house prices fall in September- Halifax

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By Matt Falloon

LONDON Oct 4 (Reuters) - House prices in Britain unexpectedly fell for the first time since December last month, according to HBOS Plc's Halifax house price survey on Thursday, in a firm sign that the property market is coming off the boil.

Rising interest rates and a global lending squeeze have been expected to weigh on house market sentiment in Britain and the latest decline in prices will encourage the view that interest rates could fall in the coming months.

The Bank of England is widely expected to keep rates at 5.75 percent later on Thursday, but a 50 basis point cut from the U.S. Federal Reserve last month has piled the pressure on other central banks to ease monetary conditions.

Halifax said house prices fell 0.6 percent, down from a downwardly revised 0.3 percent gain in August and well below forecasts for a 0.4 percent increase.

"This could well prove to be the beginning of the end for the boom in the UK housing market," said George Buckley, chief UK economist at Deutsche Bank.

Nonetheless, the annual three-month rate of house price inflation remains in double digits at 10.7 percent, although that was below expectations for a 11.1 percent rise and down from 11.4 percent last month.

The average house price fell to 198,500 pounds ($402,800).

"September's price fall is consistent with the normal behaviour of the market during a slowdown. A mixed pattern of monthly price rises and falls is a typical feature of a more subdued housing market," said Martin Ellis, Halifax chief economist.

Halifax said the annual rate should decline further in the coming months but noted the British economy looked strong.

Many economists also argue that Britain's housing market is not yet on the verge of collapse.

"We currently believe it is unlikely that annual house price inflation will turn sharply negative, given that a lack of supply means that vendors in many areas still have some pricing power," said Howard Archer, an economist at Global Insight.

However, falling house prices on a monthly basis raise concerns over the outlook for consumer spending, especially as a global lending squeeze grips financial markets and fuels fears of a broad economic slowdown.

"Since house prices gains have stalled, we believe it is highly likely that spending growth will also hit the wall in the months ahead," said Alan Clarke, an economist at BNP Paribas.