House prices tracked by Nationwide, the UK's largest building society, fell by 1.8 per cent in February, and 17.6 per cent since the same time last year, figures published this morning show. The mortgage lender said that the average cost of a UK home is now £147,746, and indicated that the UK housing market has still further to fall.

The annual house price fall of 17.6 per cent – or £31,612 - is a record drop since the survey started in 1952. Compared with data reported by rival lender Halifax for January, showing that house prices rose by 1.9 per cent over the month, the Nationwide figures paint a gloomy picture for the short-term.

In recent weeks, there has been some evidence from estate agents and housebuilders that new buyer inquiries have picked up slightly as prices fall and interest rates are cut. This does not seem to have affected prices for the better.

Fionnuala Earley, chief economist at Nationwide, said: “Sharp cuts in interest rates have helped affordability but have not yet affected housing market confidence sufficiently to boost the levels of new transaction activity or slow the pace of house price falls.

“Early signs of increased interest in housing, as reported by the pick-up in new buyer inquiries, have yet to filter into sales but do suggest that falling prices and interest rates are raising curiosity now, which could flow through quickly once confidence returns.”

Miss Earley added that buyers were likely to put off buying a property while they thought prices still had further to fall.

Nationwide predicted that the Bank of England’s Monetary Policy Committee, which has already cut the base rate to 1 per cent, will reduce them again.

Quantitative easing, under which the supply of money in the economy is increased, is now being discussed by the MPC to ward off deflation.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "This reinforces our belief that house prices still have substantially further to drop.

"While latest mortgage approvals data suggest that housing market activity may have bottomed out and survey evidence indicates that buyer inquiries have picked up significantly recently as people are attracted by lower house prices and the Bank of England slashing interest rates, we are sceptical that sales will pick up substantially anytime soon and put a floor under prices."

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