UK house prices fell by 0.5% in December say Nationwide’s latest figures, putting the average price of a property at £182,080 at the end of 2007. The annual rate of house price inflation ended the year at 4.8%, compared to 6.9% in November.

Fionnuala Earley, Nationwide’s Chief Economist, commented that the coming months should see a disparity between the sub-prime and prime markets, as buyers looking to arrange a mortgage, or owners looking to re-mortgage in the sub-prime markets are more likely to find it difficult to get credit, whereas conditions in the prime markets are more likely to remain unchanged. Interest rate falls should ease this pressure, although this correction is unlikely to have the swift effect it had back in 2005: ‘A return of more normal trading conditions in the money markets will be important for the health of both the housing market and the wider economy in 2008,’ Ms Earley said.

‘It is true that lower interest rates will probably help market activity recover somewhat later in 2008, as lower house price growth restores some affordability and allows pent-up demand from first-time buyers to be released. However, it seems unlikely that there will be a big recovery in activity and prices… this time around lower interest rates are more likely to stabilise market activity rather than reignite it,’ she added.