House prices fell by 15.9 per cent during 2008, the biggest annual drop on record, figures showed today.
The average cost of a UK home dropped by a further 2.5 per cent in December, dashing hopes that November's slide of 0.4 per cent marked a stabilisation in the rate at which prices were falling.
Nationwide warned that prices were likely to have further to fall before significant numbers of buyers returned to the market as affordability measures still remained well above their long-run average.
The annual change, which was the biggest since the group began collecting data in this format in 1991, left the average house price at £153,048 - £20,000 less than in December last year and back down to levels seen in the spring of 2005.
Fionnuala Earley, Nationwide's chief economist, said: "2008 has been a year of turmoil in the UK housing market. The disruption in the financial markets worsened throughout 2008 and had larger implications for the real economy than we anticipated a year ago.
"This time last year we expected the housing market to cool quickly as affordability was poor and economic conditions looked set to weaken, but we did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown."
She added that conditions remained highly volatile going into 2009, making it difficult to give a specific forecast for the year.
The group's figures are in line with statistics reported by Britain's biggest mortgage lender, Halifax, at the end of last week, which showed that house prices had fallen by 16.2 per cent during the final quarter of 2008 compared with the same period of 2007, after losing 2.2 per cent of their value in December.
Nationwide said all regions of the country had seen steep price falls during 2008, with Northern Ireland leading the way, with prices 34.2 per cent lower during the final quarter of the year compared with the same period of 2007.
East Anglia was the next worst hit with a drop of 16.6 per cent, while prices fell by more than 15 per cent in London, the surrounding area and the South East.
Scotland saw the least dramatic falls, with homes losing 8.1 per cent of their value, while the North recorded an 11 per cent slide.
Nationwide said demand from consumers was likely to be an important factor in 2009, with people unlikely to be upbeat about the prospects for house prices until the economy and labour markets stabilised, hindering the pace of the recovery.
But it added that there was now likely to be significant pent-up demand from potential first-time buyers who had been priced out of the market since 2003.
It estimates that as many as 750,000 potential buyers may have been locked out of the market between 2003 and 2007 - more than the estimated total number of transactions carried out during the whole of 2008.
This pent-up demand, which will have been exacerbated by the fall in the number of new homes being built since the end of 2007, suggests house prices could recover quickly once activity in the market starts to rise again.
Ms Earley said: "The short-term outlook for the housing market is fairly weak. This should not be surprising given the economic and labour market conditions we expect to face.
"Sharp cuts in interest rates will provide support to existing and potential homeowners and pave the way for the improvement in affordability which will eventually encourage buyers back into the market."Reuse content