Property plunge: House prices are falling at fastest rate for 25 years

House prices are falling at their fastest rate since records began 25 years ago, a report revealed yesterday.

The analysis by Halifax found that since the start of March, the average home has lost nearly £12,500 in value  -  almost £1,000 a week.

The 6.4 per cent drop is the steepest three-month fall that the bank has recorded since its highly respected monthly property index began in 1983.

The last big three-month fall was in 1992, when prices dropped 3.8 per cent  -  more than a third less than the fall since March.

Experts warned yesterday that the housing crisis is going to get even worse.

Howard Archer, chief UK economist at consultancy firm Global Insight, called the drop in prices since March 'undeniably alarming' and forecast a further 24 per cent fall by the end of 2009.

The Bank of England was accused yesterday of adding to the crisis by failing to cut interest rates.

The Bank's monetary policy committee has voted to keep rates at 5 per cent amid concerns about rising inflation.

But Roger Bootle, economic adviser to the accountants Deloitte, said the move increases the likelihood of a recession.

He said: 'The cost of keeping interest rates higher for longer in order to slay the inflation dragon will be a more severe and longer-lasting downturn in activity.

'The odds of an outright recession are shortening by the day and may now be as much as one in two.'

Falling house prices mean thousands of people who took out large loans to buy homes over the last 18 months are already in negative equity, meaning their mortgage is bigger than the value of their home.

The investment bank Citigroup predicts that up to one million could be in negative equity by the end of next year.

Tory housing spokesman Grant Shapps said: 'The Halifax figures provide compelling evidence of the struggle that is now taking place in many households up and down the land.

'With the cost of living having shot up, this tired Labour Government is unable to react because Gordon Brown failed to put anything away for a rainy day.'

He urged Labour to adopt the Tory proposal to abolish stamp duty for first-time buyers on all properties bought for £250,000 or less.

Yesterday, Halifax said poor pay deals and soaring living costs were partly to blame for plummeting house prices.

Average pay rises are around 4 per cent but the extra cash is instantly swallowed up by rocketing fuel and food bills.

Unemployment poses the biggest threat to the housing market.

Halifax chief economist Martin Ellis said he expects it 'to rise somewhat' this year.

The latest figures show that unemployment hit 1.6 million in March, up 14,000 since January.

But Mr Ellis insisted the scale of the increase in unemployment is 'unlikely to cause widespread difficulties for households'.

He urged people to remember how much their home has shot up in value in recent years.

Prices may be falling sharply, but the average house price rose more than £88,000 between August 2002 and the peak in August 2007, he said.

At last year's peak the average house cost £199,600. Last month, it fell 2.4 per cent in value to £184,111, according to yesterday's report.

All the recent dismal economic data points to the strong likelihood that property prices are going to keep falling.

The number of people managing to get a mortgage to buy a home has almost halved over the last year to a record low.

As the number of potential buyers dries up, sellers are having to accept big discounts on their asking prices and new mortgage deals are becoming more expensive by the day.

But super-rich homes haven't dropped a penny

The super-rich are unaffected by falling house prices, according to a report yesterday.

Estate agent Knight Frank revealed that prices for 'super-prime' homes, worth £10million or more, in Central London have not fallen by a penny.

It said that this is the 'only true hotspot' left in the housing market, because the buyers are not affected by the mortgage drought.

Liam Bailey, head of residential research at Knight Frank, said the buyers are mostly foreigners with almost no limit on their budget.

Many are making a fortune from the soaring price of oil and other commodities, he said.

By comparison, prime homes in the capital - worth between £1million and £10million - are falling sharply in value, he said.

In May, they fell 1.5 per cent, the fastest decline since the early 1990s, down 50 per cent on the same month last year.

The sale of super-prime homes soared 40 per cent over the same period.