Major mortgage lender Nationwide says UK house prices witnessed their biggest fall in 12 years during November, with data indicating that the cost of an average home fell 0.8 per cent from a month earlier. As well as marking the first price drop seen since February 2006, it represents the largest Nationwide-reported price retreat since the summer of 1995.

The dip means the annual rate of house price inflation is now running at 6.9 per cent, down from a 9.7 per cent figure for October, although the average UK property price is £186,044, still almost £12,000 more than this time last year.

Meanwhile, the Bank of England says mortgage approval numbers have fallen to a near three-year low. According to its latest report, 88,000 new-home-buyer mortgages were approved in October, a 12 per cent drop on September and a 31 per cent reduction in comparison to October 2006.

Mortgage approvals are a key housing market activity indicator and, allied to Nationwide’s statistics, signal a rapid market downturn. According to Nationwide chief economist Fionnuala Earley, the data ‘confirms the housing market is indeed cooling’, with ‘poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates’ affecting demand.

However, the Council of Mortgage Lenders (CML) suggests the downturn might not be as pronounced as analysts think, pointing out that it may be caused by illiquidity in global financial markets – banks are having to pay more to borrow money, cutting back on lending and asking for higher rates of return. CML director general Michael Coogan ‘would like the Government and the Bank of England to consider how best to unblock the funding log-jam that some UK lenders are experiencing, so that they can continue to fully meet consumer demand’.