According to the survey, house prices fell by 10.5 per cent year on year between August 2007 and August 2008, bringing the average house price down to £164,654.

The housing market was one of the first hit by the credit crunch and the initial damage looks set to continue as experts predict recession for the UK.

The state of the house building industry only serves to highlight this, as Taylor Wimpey shares continue to crash – they have fall by more than 75 per cent over the year.

Speaking of the current conditions facing the housing market, Nationwide’s chief economist, Fionnula Earley, said: “Recent activity levels in the housing market have been very subdued.

“House builders in particular have been reporting significant reductions in site visits and reservations of new properties since last year, in spite of a big increase in the use of sales incentives.

“Reservations of new property began to feel the squeeze before any slowdown was recorded in the official number of house purchase approvals, but the two series have moved closely over recent months.”

However, despite the gloomy reports, estate agents are reporting a glimmer of hope in the form of increased new buyer enquiries, perhaps triggered by the continuous reductions in house prices.

Nevertheless, mortgage lending remains tight as the UK prepares for recession and banks are becoming increasingly protective of their capital. Furthermore, as the Bank of England dithers over the base interest rate, Nationwide found that 44 per cent of borrowers are now more likely to opt for a fixed rate mortgage.

Speaking of the new trend, Ms Earley, said: “This change in behaviour could be an indication that borrowers are keen to be sure of their outgoings in uncertain times and wish to protect themselves, even though the choice may be more expensive in the long run.”

This is a mood that is also reflected in gas and electricity prices and the race by consumers to switch to capped rates earlier this month.

Speaking of the base rate, Ms Earley added that recent increases in inflation have roused speculation that the base rate will be lowered which has in turn impacted on mortgage rates. However, she concluded:

“We expect the next move in the Bank Rate to be down, but the extent to which this will revive the mortgage and housing market is likely to be limited while overall confidence in the economic housing market conditions is low.”

© Fair Investment Company Ltd