Although the fall is less than December’s 2.5 per cent slump, the continued decline took the annual fall to 16.6 per cent, up from 15.9 per cent last month.

According to Nationwide, the average house in the UK now costs £150,501, which is down from £153,048 in December and a massive £35,543 lower than the average of £186,044 seen at the house price peak back in October 2007.

“The price of a typical house fell by a further 1.3% in January, as the deepening economic recession and financial market turbulence continued to weigh on housing market sentiment and activity, explained Nationwide’s senior economist, Martin Gahbauer.

He said that although the 3-month on 3-month rate of change – described as “a smoother indicator of the short-term trend in prices” – improved for the fourth consecutive month from -4.2% in December to -4.0% in January, it is still “too early to say that this marks the start of a sustained improvement in the short term trend.”

Due to the fact that activity in the housing market has remained low, says Nationwide, mortgage approvals for house purchase has also fallen, hitting a record low in November of just 27,000, although approvals picked up slightly in December.

“House purchase approvals have historically been a good lead indicator of house price movements, and we would not expect to see a stabilisation of property prices until approvals recover significantly from current levels,” said Mr Gahbauer.

He said that while in the past, approvals have tended to move in line with new buyer enquiries at estate agents, over recent months buyer enquiries have begun to recover, but this has not been mirrored by the mortgage market, with approvals still showing little sign of recovery.

“Mortgages have become less widely available as a result of heightened economic risk, tighter lending criteria and a decline in the number of lenders who are active in the market,” Mr Gahbauer said.

“However, the increasing level of enquiries suggests that activity levels have a reasonable chance of recovering from their recent lows once an end to the recession is in sight and/or the recent government interventions lead to an improvement in the availability of credit.”

Commenting on the figures, Howard Archer, chief UK and European economist for IHS Global Insight, told the Times: “The housing market started off 2009 with a further marked drop in prices, and it seems set for another very difficult year given that current largely unfavourable fundamentals are likely to persist for some time to come.”

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