House prices in Britain fell at their sharpest rate in more than 12 years in November, in the most dramatic warning sign yet that the housing market could be heading for a very serious slowdown.

The weak figures from Nationwide came as Mervyn King, the Governor of the Bank of England, gave warning that property prices could take an early hit from the global credit crisis.

Mr King told the Commons Treasury Committee: “In the UK, the consequences of [turmoil in global financial markets] are difficult to assess and are likely to be evident first in the housing and commercial property markets.”

Nationwide reported that the cost of an average home fell 0.8 per cent this month, the first decline since last February and the largest drop since June 1995, although it did follow a sharp 1.1 per cent rise the previous month. The average cost of a home is now £184,099, according to the building society.

The drop took the annual rate of growth down to 6.9 per cent, its weakest since August 2006, and down from from 9.7 per cent in October.

Nationwide’s findings come amid mounting evidence of a property slowdown. Separate figures released by the Bank of England showed today that the number of mortgages approved for people buying a home fell to its lowest level for nearly three years during October.

Just 88,000 home loans were approved for people moving during the month, the lowest figure since February 2005 and well down on the recent monthly average of 109,000, according to the Bank.

Yesterday, a report by HSBC said house prices in Britain appeared to be overvalued by about 30 per cent and the Land Registry, the most comprehensive source of house price data, said that house prices fell by 0.6 per cent in October in London.

Fionnuala Earley, Nationwide’s chief economist, said: "November’s data confirms that the housing market is indeed cooling in line with the weakening in housing market drivers. Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market."

House purchase approvals, a strong indicator of demand, slumped more than 20 per cent to 102,000 between the end of last year and September, Ms Earley said.

She added: "We expect this activity to continue to fall back throughout the rest of this year, and into the next."

Nationwide said that because monthly data can be volatile, the three-month growth rate offered a truer picture of the underlying trend. This showed a softening from 1.8 per cent last month to 1.5 per cent in November.

Howard Archer, Global Insight's chief UK and European economist, said the market will be saved from a crash by limited supply and expected interest rate cuts by the Bank of England next year.

But he added: "Nevertheless, there is undeniably a very real risk that the housing market could see a sharp correction."

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