House prices plunged by 15.9 per cent during 2008, the biggest annual drop on record, and are set to fall even further over the coming 12 months.

According to Nationwide, the building society, the annual fall is the biggest since it began compiling data in 1991 and means the average price of a UK house is now £153,048 - £20,000 less than in December last year.

The average price of a UK home dropped by a further 2.5 per cent in December, dashing hopes that November's relatively subdued decline of 0.4 per cent marked a stabilisation in the market.

Nationwide warned that prices were likely to fall further before significant numbers of buyers returned to the market.

Howard Archer, chief UK and European economist at IHS Global Insight, estimated that house prices will fall another 15 per cent over 2009 as people continued to have difficulty in securing mortgages and saving deposits.

Fionnuala Earley, Nationwide’s chief economist, said: “2008 has been a year of turmoil in the UK housing market. The disruption in the financial markets worsened throughout 2008 and had larger implications for the real economy than we anticipated a year ago.

“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.”

She added that conditions remained highly volatile going into 2009, making it difficult to give a specific forecast for the year.

Moreover, Mrs Earley highlighted that demand from borrowers was likely to be an important factor this year, with potential buyers unwilling to make their move while they still believe house prices will fall further and worry about losing their jobs.

Money Central: 10 house price predictions for 2009

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