Halifax reports largest ever annual drop in prices

Figures released by finance group Halifax revealed today that the average house price fell by 2.2% in December, leaving them 16% on this time last year, the largest annual fall since records began.

Prices were also seen to fall at over 5% in each of the last three quarters of 2008, representing an annual drop of more than 20%. The average price of a house is now £159,900, a fifth lower than in the autumn of 2007. Halifax said house prices would continue to fall for some time and many analysts expect a fall of up to 50% from the housing market's 2007 peak, reaching a nadir in 2010 or 2011.

Liberal Democrat treasury spokesman Vince Cable, in an interview reported in the Guardian, said: 'It is understandable that when house prices are falling and are expected to continue to fall for some time that borrowers will hold back rather than risk finding themselves in negative equity.

'Nonetheless it does appear that the inevitable big correction in the housing market is being exaggerated by the complete collapse of mortgage lending by the banks. The government is completely paralysed at this crucial moment.'

The Bank of England is expected to slash interest rates further next week from the current joint all-time low of 2%. Some economists predict that the cut could be as much as 1%.

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