Fall in house prices starts to slow

The average cost of a home dropped by just 0.4% during the month, compared with a slide of 1.3% during October, according to Nationwide Building Society.

At the same time, the annual rate at which prices are falling eased to 13.9%, compared with a year-on-year drop of 14.6% a month earlier.

It is the first improvement in annual house price inflation since October last year, when the year-on-year rate at which prices were rising first began to decline. The average home now costs £158,442, £25,000 less than a year ago, but still £25,000 higher than in November 2003.

Fionnuala Earley, Nationwide's chief economist, said: "In spite of the moderation in house price falls recorded in November, with the economy in recession, conditions do not appear very favourable for a swift recovery in the housing market.

"The labour market is weakening, which will inevitably hinder market demand, particularly when property remains expensive relative to earnings. With prices falling at their current rate, there is also little incentive for new borrowers to hurry into the market."

The group said recent interest rate cuts would help a number of existing and new borrowers, while some of the measures announced in the Pre-Budget Report would also have an indirect impact on the market. But it said the biggest impact on the housing market was likely to be the Chancellor's response to the Crosby Review on mortgage finance.

Former Halifax Bank of Scotland boss Sir James Crosby recommended that the Government should provide temporary guarantees for mortgage-backed securities to get the market for the product, which dried up in the wake of the credit crunch, moving again.

This initiative should be accompanied by changes to increase the transparency of new mortgage-backed securities, and a review of the fair value accounting principle to be carried out by the International Accounting Standards Board.

But he warned that there was a real risk that the current mortgage shortage could cause the house price correction to "overshoot", adding that it was very likely that new net mortgage lending would fall to below zero in 2009.