House prices tumble 1980s-style

November's fall in value is the biggest drop since 199

House prices are plunging at their fastest pace since the last recession as banks ration credit and nervous buyers stay away, Halifax reports.

Britain's biggest mortgage lender revealed a 2.6 per cent fall in prices for November, the biggest drop since 1992. The 18 per cent fall from the market's peak in August last year already far outstrips the 13 per cent top-to-bottom decline in the last recession, which took six years.

"The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand," Martin Ellis, Halifax's chief economist, said. The average price of a house fell to £163,605, wiping out more than three years of gains as the market rocketed during the boom in cheap debt. The figures provided a final spur to the Bank of England to cut interest rates by a full percentage point after a week of grim economic data.

Average economist forecasts are predicting a drop of up to 25 per cent for this year and next. Halifax had stuck to a forecast of up to 20 per cent but is now likely to issue a gloomier prediction later this month.

Howard Archer, UK economist at IHS Global Insight, said: "The latest Halifax house-price data is a real shocker, even by the recent very low standards of the housing market. IHS predicts a fall of 35 per cent from the peak with prices not flattening out until late 2010."

The Halifax figures hide big variations across the country with new-build homes and urban regeneration projects in cities such as Leeds and Salford tumbling while top-end properties in London and homes in towns that slept through the boom holding up relatively well. But the past two months have seen all parts of the country heading into negative territory.

Mr Ellis of Halifax said the bright spots in the survey were increased affordability for first-time buyers and the easing of pressure on incomes as food and energy prices fall. But with banks limiting their lending and potential buyers reluctant to buy falling assets, these factors are likely to have little effect in the short term.

The Halifax data contrasts with the surprisingly small 0.4 per cent drop in prices reported by Nationwide for last month and will cause grave concern.