House prices have fallen in the past 12 months by more than the average Briton earns in a year, new figures show. The average home is now valued at £27,000 less than in October last year, while the national average salary is about £25,000.

House prices fell by 1.4 per cent in October, pushing the annual decline to 14.6 per cent, figures from Nationwide show. This is the biggest annual fall since comparable records began in 1991 and the number of home sales looks likely to fall to the lowest level since 1974.

An average home is now worth £158,872, down from £186,044 in October last year when the market peaked, Nationwide said. The pain for homeowners is unlikely to be over as economists forecast that prices could fall by as much as 35 per cent from the peak, which would cut the value of an average property by £65,000.

The fall in prices has thrown nearly half a million homeowners into negative equity but there are fears that nearly two million more households will suffer the same fate.

The mortgage drought caused by the financial crisis has dragged down prices as buyers struggle to secure a home loan. Mortgage lenders are demanding hefty deposits from all new borrowers, preventing many would-be buyers from getting on the property ladder.

Sellers are being forced to reduce their prices to attract the attention of the dwindling number of buyers. Fionnula Earley, chief economist at Nationwide, said: “Consumers still expect house prices to continue to fall into 2009 and will, therefore, be reluctant to trade without some discount on the asking price.”

The number of first-time buyers has fallen by 55 per cent in the past year, recent figures show, and Ms Earley said that unless there were a sharp increase in activity, the number of transactions this year would descend to a 34-year low.

Economists warned homeowners against pinning their hopes on expected interest rate cuts to refuel the property market.

Ed Stansfield, of the consultancy Capital Economics, said that there would be no recovery in prices even if rates fell to as low as 1 per cent. “With unemployment rising and expectations that house prices have much further to fall still widespread, lower interest rates will not stimulate housing demand.”

As homeowners grapple with the twin blows of tumbling house prices and rising household expenses, there is mounting evidence that increasing numbers are finding it difficult to make ends meet. People are now less likely to buy items such as furniture or expensive electrical goods than at any time since 1982, figures from the market researchers Gfk NOP show, and more people are running into difficulties with mortgage repayments.

The number of repossessions rose by more than 70 per cent between April and June compared with the same period last year, figures from the Financial Services Authority showed this week.

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