House prices fell by 3.9% in the prime country house market in the second quarter of 2008, says the latest report from Knight Frank, the largest fall since Knight Frank started the index in 1995.

For the first time, all three property types included in the index – manor houses, farmhouses and country cottages – recorded falls in price, probably due to the fact that these properties attract buyers from the professions; people who have become more cautious in such pessimistic times.

Cottages fell most steeply in price, by 5.7% in the second quarter, with farmhouses falling at 4.0% and manor houses falling the least at 1.9%, the smaller drop reflecting the relative scarcity of these larger, more expensive properties.

‘For the first time since 2005, prices for prime country houses have fallen on a year-on-year basis – and, at 2.8%, by the biggest margin in the history of the index,’ said Liam Bailey, head of residential research at Knight Frank.

Although the picture is not exactly the same across the entire country, as regionally the market differs, Mr Bailey explained: ‘In the Midlands and the South there has been a noticeable drop in the number of properties coming to the market, perhaps because sellers are opting to wait until the market improves.

‘Parts of Scotland and the North of England provide the only real bright points in this picture, and, as yet, seem immune from the falls seen elsewhere.  Price rises of under 1% were recorded in both the Lothians and the West Coast, while values remained static in Northumberland and the Borders. Viewings and instructions have also increased north of the border in recent months, suggesting that this may continue.’

Rupert Sweeting, head of Knight Frank’s country department, said that good houses, particularly above the mortgage-driven market, are still selling well.

‘Properties prices at more than £4m are still in demand and attracting offers above asking prices,’ he said.

‘The other bright spot is farm and land sales. There is no sign of demand slackening and rural land prices continue to increase dramatically.

‘Sales are still going through, and while the number of buyers have decreased, there are also fewer properties coming onto the market. As a result, supply and demand is not quite as unbalanced as the figures suggest.’