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The housing market looks set for a grim 2009 after figures today showed another sharp fall in house prices in December and a record low number of new mortgages lent.
The average house price in Britain fell a bigger-than-expected 2.2% last month, the Halifax said today, leaving them more than 16% down from a year earlier.
Continuing pressures on incomes and the negative impact of the credit crunch on the availability of mortgage finance are expected to push prices down further over the next few months, the country's largest mortgage lender said.
The latest Halifax numbers mean that the average price of £159,900 is a fifth lower than it was at the peak of the housing market bubble in the autumn of 2007.
The Halifax said that the average house price had fallen 5.2% in the fourth quarter of the year - similar to the third quarter drop of 5.6% and the second quarter's 5.1% fall. But that still means prices are falling at an annual pace of over 20%.
Martin Ellis, Halifax chief economist, said: "But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households' finances should support market activity and prices.
He added that the house price to earnings ratio – a key affordability measure - is at its lowest for five-and-a-half years at 4.4 times, down from nearly six times in the middle of 2007 and not far above what it says is the long-term average of four times.
The Halifax has declined to give a forecast for house prices for this year but many analysts think prices will fall by between 35% and 50% from the peak in 2007 to the trough in 2010 or 2011. Not only were house prices hugely overvalued, they say, but the drying up of mortgage finance has further hit buyers' ability to purchase a property.
Separately the Bank of England reported that new mortgage approvals for house purchases dropped to a record low of 27,000 in November, down from 31,000 in October and the lowest level since comparable records began in 1993. Approvals were down from 75,000 at the end of 2007 and 114,000 in mid-2007.
The Bank also revealed that net mortgage lending was just £740m in November. While up from £477m in October, it was still one of the lowest levels on record and less than 10% of the £8bn of November 2007.
Liberal Democrat Treasury spokesman Vince Cable said: "It is understandable that when house prices are falling and are expected to continue to fall for some time that borrowers will hold back rather than risk finding themselves in negative equity.
"Nonetheless it does appear that the inevitable big correction in the housing market is being exaggerated by the complete collapse of mortgage lending by the banks. The government is completely paralysed at this crucial moment."
Shadow chancellor George Osborne added: "The new year shows that Gordon Brown's policies are not working and the recession is getting worse not better. That is because an economic recovery depends on confidence in the future, and people do not have that confidence while we have a Labour government in power bankrupting the country."
Analysts were also gloomy.
"It may be 2009 but the ghosts of 2008 will continue to haunt us, and for some time yet. The November mortgage lending and December Halifax house price figures are just two grim reminders of the death, last year, of easy money, inflated house prices and consumer confidence, and there will be many more in the months ahead before things finally start to improve," said Andrew Montlake of mortgage broker Cobalt Capital.
The Bank of England's monetary policy committee holds its latest monthly meeting next week and is widely expected to cut interest rates to an all-time low in a bid to prevent the whole economy slumping into a deep and painful recession. Rates are currently at a joint all-time-low of 2% and many economists think Threadneedle Street will cut them to as low as 1% next Thursday.
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