House prices are falling at a record rate as the credit crunch continues to squeeze the property market, figures showed today.
The average UK home lost 8.1 per cent of its value during the past year, the biggest annual drop since Nationwide's monthly house price index was launched in 1991.
House prices fell for the ninth month in a row during July, losing a further 1.7 per cent of their value, nearly double the 0.8 per cent drop seen in June.
The group said the average home now costs £169,316, nearly £15,000 less than this time last year and the lowest since August 2006.
But it added that, on average, prices were still nearly £11,000 higher than they were three years ago.
Today's gloomy data, which is worst than economists had forecast, comes two days after figures showed the number of mortgages approved for house purchase had dived by nearly 70 per cent during the past year to hit a new record low.
The Bank of England said just 36,000 new loans were arranged for people moving house during June, while net mortgage lending, which strips out redemptions and repayments, fell to a near eight-year low of £3.1 billion.
A report by ratings agency Standard & Poor's yesterday warned that up to 1.7 million homeowners could be plunged into negative equity if house prices fall by a further 17 per cent.
It added that around 70,000 people already owe more on their mortgage than their property is worth as a result of the current downturn.
The mortgage drought is exacerbating the problems in the housing market as potential buyers struggle to raise the finance they need, making it difficult for people to get on to or trade up the property ladder.
The Government-commissioned Crosby Review on mortgage financing this week warned that the market would not return to normal for another two to three years.
But there has been some good news for homeowners during the past two weeks, with a flurry of major lenders, including Abbey, Halifax and Lloyds TSB, cutting the cost of their fixed-rate mortgages following a fall in swap rates, upon which the deals are based.
The moves have prompted speculation that the worst impact of the credit crunch on mortgage rates may have peaked.
Fionnuala Earley, Nationwide's chief economist, said: "As the cost of mortgages begins to come down, activity could be bolstered and restore some liquidity to the housing market.
"However this is not likely to happen overnight. Overall the weakening economy and poor housing market sentiment do not suggest that the market will recover quickly."
But she added that if oil prices carry on falling and the economy continues to slow down, the possibility of the Bank of England's Monetary Policy Committee rapidly cutting interest rates increased.Reuse content