Michael Saunders, head of European Economics at Citigroup, says that up to 200,000 people are falling into negative equity every month, and predicted that as many as three million households will owe more on their mortgage than their house is worth.

Mr Saunders was speaking in response to the Nationwide Building Society’s latest housing index which showed that house prices in the UK have continued to slide in 2009, falling by 1.3 per cent in January taking the annual fall to 16.6 per cent.

In January 2008, the average house was worth £180,473; a year later, they have tumbled by £30,000 to £150,501.

House prices in the UK have now been following for 15 months consecutively and are worth £35,543 less than at the housing peak of October 2007, Nationwide’s analysis has found.

Martin Gahbauer, senior economist at Nationwide said that although the decline in house prices continued in January, it is slowing.

“The 3-month on 3-month rate of change, 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,” he said, though he admitted that “it is too early to say that this marks the start of a sustained improvement in the short term trend.”

But Mr Saunders was even less encouraged by recent figures and painted a bleak picture for the housing market; “there is no sign that the decline in house prices – and hence the surge in negative equity – is yet close to ending,” he told The Telegraph.

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