Biggest monthly house price decline for 12 years

More evidence has emerged that the property market is turning sour.

The Nationwide has reported that house prices slumped 0.8 per cent in November the highest monthly fall seen by the building society since 1995.

Fionnuala Earley, chief economist at Nationwide, said: "Poor affordability, weaker expectations for house-price growth and the effect of earlier increases in interest rates have all affected demand in the market."

However, Nationwide does not expect the decline to turn into a crash. Instead, it is predicting that prices will flatline in 2008. "With rates on the way down and the continued issue of undersupply of housing in the UK market," said Ms Earley, "the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest."

Meanwhile, the Bank of England has said the number of new mortgages taken out is at a three-year low. In total, just 88,000 home loans were approved by lenders in October 31 per cent lower than for the same month last year.

The Royal Institution of Chartered Surveyors (Rics) said the sharp drop in new mortgages tied in with the experience of its own members."The housing market is slowing sharply. However, we still expect most of the fall-out from the current round of turmoil in credit markets to be felt in terms of lower levels of activity, rather than outright house price declines," commented Simon Rubinsohn, chief economist at Rics.

"Typically, prices only tend to decline in a meaningful way when forced selling leads to a glut of supply."

Mr Rubinsohn added that the definite weakening in the housing market strengthened the case for the Bank to cut interest rates when it meets this week.