House prices post biggest annual drop

LONDON (Reuters) - House prices fell in October at their sharpest annual rate since records began in 1991, the Nationwide building society said on Thursday, as the housing market slump gains momentum.

The mortgage lender said house prices fell 1.4 percent on the month. That was the 12th consecutive monthly fall, albeit smaller than the declines registered in each of the previous three months.

The annual drop of 14.6 percent, after a 12.4 percent annual fall in September, was the biggest since the last housing market crash and took the average property price to 158,872 pounds, almost 30,000 pounds below their peak a year ago.

The precipitous drop in house prices both in Britain and overseas has been a key driver of the crisis that has rocked the banking sector, prompting unprecedented government intervention.

And analysts reckon house prices will continue to fall for some time, impacting further on depressed consumer spending and the weakening economy.

"This wealth destruction, coupled with growing concerns about negative equity is likely to keep consumer confidence very weak," said James Knightley, economist at ING.

"This, combined with plunging business surveys and the third-quarter negative GDP rate should ensure another Bank rate cut on Thursday of at least 50 basis points, with further large cuts likely in the next few months."

The economy shrank 0.5 percent in the three months to September and is expected to continue to contract into next year as the global financial crisis spreads out from the hard-hit financial sector.

That has raised expectations the Bank will cut rates to 4.0 percent from 4.5 percent next week, following up this month's 50 basis point cut.