The housing market slump will wipe £50,000 off the value of the average British home and plunge one in seven homeowners into negative equity, influential new research suggests.

Some 70,000 mortgage-holders already owe more than their homes are worth after the near-10 per cent falls in house prices over the past year, Standard & Poor's (S&P), the credit ratings agency, said. It forecasts that prices will fall by a further 17 per cent, or £30,000, by next April, putting 1.7 million borrowers into negative equity. A 17 per cent fall in prices would take the value of the average house to about £150,000, down from £199,600 in August last year, according to Halifax figures. S&P said that for every further percentage point decline in house prices, between 60,000 and 180,000 extra homeowners could fall into negative equity.

The news came as a poll showed that consumer confidence had tumbled to a 34-year low. The GfK/NOP index measuring attitudes to personal finances and Britain's economy fell to -39 this month, down from -34 in June and the lowest level recorded since the series began in 1974.

There are fears that the increased pressure on homeowners as utility, fuel and mortgage bills rise could cause more people to fall behind with home-loan payments. Borrowers in negative equity who miss multiple mortgage payments or who want to move home could be forced to sell their properties at a loss.

A further 17 per cent fall in house prices would push the average mortgage of those in negative equity up to 108 per cent of the value of their property, leaving them with a debt of £12,500 even if they sold up, S&P said.

Lloyds TSB, the third-biggest mortgage lender, which yesterday reported a 70 per cent drop in first-half pre-tax profits, said the number of its mortgage accounts three months or more in arrears rose by 3 per cent in the past year. It expected house prices to fall by a further 10 to 15 per cent this year, and 5 per cent next year.

Homeowners with a blemished credit history are more likely to fall into negative equity because more of these sub-prime borrowers bought their homes with small deposits. Nearly a quarter of them would be in negative equity if house prices fell a further 17 per cent, while 13 per cent of prime borrowers with clean credit histories would be affected. Borrowers in the East and West Midlands are more likely to be affected by negative equity than homeowners in other parts of the country, S&P said, because house prices there had risen more slowly in the past three years. More than one in five borrowers in the region would be in negative equity if house prices fell 17 per cent, while a similar fall in Scotland would force only 6.2 per cent into negative equity after strong rises in house prices there since 2005.

Some analysts predict sharper house price falls than S&P's forecast of a 25 per cent drop between August last year and next May. Global Insight, the economic consultancy, said prices would fall by 30 per cent, while Capital Economics expects a 35per cent drop.

But there was a glimmer of hope for homeowners. Abbey and HSBC announced mortgage rate cuts. HSBC has cut the rates on its fixed-rate deals by up to 0.31 percentage points from today, while Abbey will trim the rates on its two and three-year fixed and variable mortgages by up to 0.15 percentage points tomorrow.

Money Central

County-by-county: Completion prices as a percentage of asking prices