Average house price back below £150,000

House prices fell by a further 1.8 per cent during February, pushing the average cost of a home back below the £150,000 threshold, figures showed today.

Nationwide Building Society said the average property in the UK was now worth £147,746 - £31,612 less than in the same month of 2008.

The annual rate at which house prices are falling also continued to accelerate to hit a new record of 17.6 per cent.

The figures are in sharp contrast to ones reported by Halifax for January, which showed house prices rose by 1.9 per cent during the month, although at the time economists cautioned against reading too much into the rise.

The Nationwide data also suggests that anecdotal evidence from estate agents showing a pick-up in interest from potential buyers has not yet filtered through into sales.

Fionnuala Earley, Nationwide's chief economist, said: "Sharp cuts in interest rates have helped affordability, but have not yet affected housing market confidence sufficiently to boost the levels of new transaction activity or slow the pace of house price falls.

"Early signs of increased interest in housing, as reported by the pick-up in new buyer inquiries, have yet to filter into sales, but do suggest that falling prices and interest rates are raising curiosity now, which could flow through quickly once confidence returns."

But she added that the high deposits currently being demanded by lenders, with borrowers needing to put down at least 40 per cent of their home's value to qualify for a fifth of deals, was acting as a constraint on first-time buyers.

At the same time, she said buyers were likely to continue to sit on their hands while they thought house prices still had further to fall.

The group said it expected the Bank of England's Monetary Policy Committee, which has already cut the base rate from 5 per cent in October to 1 per cent this month, to reduce official rates again.

Minutes from the last interest rate-setting meeting, which were published last week, showed members of the MPC believed quantitative easing, under which the supply of money in the economy is increased, was now required to ward off deflation.

Nationwide said that while further cuts in rates would be welcome, the economic conditions that require them, meant there was unlikely to be a swift turnaround in the housing market during 2009.

It added that it was too early to say the housing market had reached its trough given the current recession.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "This reinforces our belief that house prices still have substantially further to drop.

"While latest mortgage approvals data suggest that housing market activity may have bottomed out and survey evidence indicates that buyer inquiries have picked up significantly recently as people are attracted by lower house prices and the Bank of England slashing interest rates, we are sceptical that sales will pick up substantially any time soon and put a floor under prices."

Seema Shah, property economist at Capital Economics, said: "The sharp drop in prices in February dispels any hopes that the housing market has moved into 2009 on a stronger footing.

"Indeed, if the average rate of decline seen in the first two months of the year persists, house prices will be more than 30 per cent below their peak by December."

But David Smith, senior partner at Dreweatt Neate estate agents, said: "While transaction levels overall remain low and mortgage finance is still difficult to secure at higher loan-to-values, increasingly there are reasons to be positive and we do believe that now and the next six months are the trough for house prices.

"All our offices are reporting that interest is stronger than it has been for over a year, while mortgage rates are now very competitive for people with decent-sized deposits and sellers have become a lot more realistic with their asking prices.

"Of course, the key to a full-scale market recovery is the wider availability of mortgage finance and the small issue of confidence, which remains very fragile given the broader economic situation."