UK house prices fall at record annual pace

House prices fell by a bigger-than-expected 1.8 per cent last month for a record annual decline of 17.6 per cent, figures from mortgage lender Nationwide showed.

The 15th consecutive monthly fall took the price of an average house down to £147,746, the lowest level since April 2004 and 20.6 per cent down on the peak of over £186,000 reached in October 2007.

A bleak economic outlook and a shortage of mortgage finance has sapped Britons' confidence to make what for most is their biggest investment, and a cut in Bank of England rates to one per cent from five per cent in October has failed to restore demand.

Analysts said the Nationwide survey suggested house prices had even further to fall as lending conditions remained tight.

"Mortgage activity is still extremely low compared to long-term norms, while many people are likely to be looking at houses pretty casually and will probably be very cautious about committing to buying a house in the current economic environment," said Howard Archer, chief UK economist at IHS Global Insight.

Nationwide said falls in borrowing costs since December 2007 had reduced the cost of an average monthly mortgage payment by £226 for borrowers with a standard variable rate, pointing to confidence rather than finance costs as the main barrier to new sales.

"Further cuts in rates will be welcome in the housing market, but the economic conditions that require them will mean that there is unlikely to be a swift turnaround in the housing market this year," said Nationwide economist Fionnuala Earley.