Hundreds of thousands of homeowners have been plunged into negative equity as house prices have slid by almost 16 per cent in the past year, Britain's biggest building society has indicated. Latest data from Nationwide indicates that house prices collapsed by 15.9 per cent in 2008, the biggest annual fall since records began in 1991.

Prices slumped by 2.5 per cent last month alone, far exceeding a fall of 0.4 per cent in November and dashing hopes that the slide had begun to ease.

Fionnuala Earley, Nationwide's chief economist, said: “While the economy is in recession, we expect house prices to continue to fall. Towards the end of 2009 we may see some buyers return to the market, but would not expect house prices to begin to rise until 2010.”

Nationwide's data had big variations between regions. In Scotland, prices fell by only 8.1 per cent, but the fall in Northern Ireland was 34.2 per cent.

Standard & Poor's, the credit rating agency, said that 600,000 homeowners had been put into negative equity in the past year, becoming trapped in homes worth less than their mortgages. A total fall in house prices of 25 per cent would put 1.7 million households in negative equity, it said.

Citigroup, the American bank, has forecast that more than three million borrowers, a fifth of homeowners, could be in negative equity by 2010, nearly double the 1.8million peak in the early 1990s.

The Council of Mortgage Lenders (CML) has predicted that 75,000 homeowners will be repossessed this year. About 200,000 people are at least three months behind on mortgage repayments; the CML says that 500,000 will be by the year's end.