According to the statistics, house prices fell by 2.5 per cent in December, despite a previously moderate fall of 0.4 per cent in November, making the average house price in the UK £153,048.

In December 2007, the average house price stood at £182,080, almost £30,000 more than the current level, demonstrating how rapidly prices have fallen since the beginning of the credit crunch.

Commenting, Fionnuala Earley, chief economist at Nationwide Building Society, said: “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.”

However, Ms Earley added that with hindsight the downward path of house prices in 2008 was understandable due to credit conditions, expectations and affordability.

Nevertheless, Nationwide, along with Halifax, continues to refrain from making forecasts for 2009, Ms Earley said: “Conditions remain volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices.

“In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty.

Despite the fact that interest rates are expected to fall below their current rate of two per cent when the Bank of England’s Monetary Policy Committee meets later this week, Ms Earley claims that credit availability will continue to cause problems throughout 2009 as mortgage providers continue to constrict their lending.

However, ‘pent up’ demand is likely to aid the housing market’s recovery, Ms Earley added, as first time buyers have been pushed out of the market, there will come a point when they will re-enter the market.

Commenting on the immediate future of the housing market, Ms Earley concluded: “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 in affordability which will eventually encourage buyers back into the market.”

© Fair Investment Company Ltd