UK House prices and the fear of negative equity.

The Nationwide Building Society has revealed that for the first time in over ten years, UK house prices are now falling year-on-year and this month has seen an increase in tighter lending conditions, coupled with a weaker economy that has caused a backlog of unsold properties and stagnated the market.

The average UK home has fallen by 1.1% in April, following a six month spell of falling prices and the average price is now £ 178,555.

It also is the first drop on an annual basis since 1996.

The year-on-year declines has caused panic amongst many homeowners, especially those who purchased their homes since last spring who are most likely to be pushed into negative equity.

Yesterday came the news that Mortgage lenders approved the fewest new loans since at least 1999 and that the credit crisis will continue to leave borrowers facing difficulties in raising finance to buy property whose value is turbulent at best.

The price fall last month of 1.1 percent, is twice the pace that economists had forecast, despite consumer confidence falling to its lowest levels since 1992.

David Balnchflower, a policy maker at the Bank of England, has warned that even though the bank is willing to cut interest rates further, house prices could still fall by 33 percent over the course of the next couple of years.

Although they had expected moderate price falls through out the year, the current credit conditions have added fuel to the price.

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