House prices in biggest annual fall since 1991

By Christina Fincher

LONDON (Reuters) - House prices fell almost two percent on the month in August to post their biggest annual drop since monthly records began in 1991, the Nationwide building society said on Thursday.

The decline, which was bigger than most analysts were expecting, heightened concern the economy is heading for recession and pushed sterling to a 12-year low on a trade-weighted basis.

"If prices continue to fall at the pace they have done over the past three months, they will end the year down 15 percent," said George Buckley, chief UK economist at Deutsche Bank.

"With inflation, this means that residential real estate will have lost around a fifth of its value in real terms during 2008."

House prices have shed around 10 percent since last August after a decade in which property values almost trebled.

With unemployment also rising and a recession looming, banks have tightened their lending criteria. Many now refuse to offer mortgages to homebuyers with less than a 25 percent deposit.

Nationwide's figures chime with those from rival lender Halifax and highlight the reversal of fortune for the property market since the credit crunch took hold last summer.

Nationwide said the average price of a property fell by 1.9 percent in August, a tenth consecutive monthly decline, to stand 10.5 percent lower than at the same time last year.