Nationwide rules out forecast as UK house prices plunge

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"In these turbulent times the uncertainties around all forecasts are greater than usual," said chief economist Fionnuala Earley. "A forecast subject to frequent change could add to greater uncertainty.

"If the economy goes into deeper recession we should expect to see a slower recovery in the cycle. However, if the economy recovers more swiftly, we may expect a faster turnaround in the housing market."

She also said the expected cut in interest rates by the Bank of England on Thursday is vital. "Sharp cuts in interest rates will provide support to existing and potential homeowners and pave the way for improvement in affordability which will encourage buyers back into the market."

Analysts are split as to whether the Bank's monetary policy committee, which starts its two-day meeting tomorrow, will cut rates from their current 2% to 1.5% or a record low of just 1%. Most favour a 0.5% cut.

Nationwide said prices fell 2.5% during December. That brought the average house price down to £153,000 — a level not seen since spring 2005.

In London the average house price fell 15.1% to £257,963 with Westminster the most expensive and weakest borough with prices falling by 22% to an average £513,953.

Howard Archer at IHS Global Insight, who predicts a 15% fall in prices this year, said: "The ongoing deep problems of the housing market maintain pressure on the Bank of England to deliver another deep interest rate cut on Thursday."

Meanwhile, Knight Frank's measure of prime country houses said prices fell 16% in 2009, with areas on the outskirts of London hard hit. The top end of the market, mansions over £5 million, fared much better than the lower end, country cottages under £500,000, with price falls of 10% and 17% respectively.