House prices post biggest annual drop

The 12th consecutive monthly drop highlights the reversal of fortune for the property market since the credit crunch took hold last summer. Nevertheless, September's fall was smaller than the declines registered in each of the previous three months.

The annual drop of 14.6 percent took the average price of a property to 158,872 pounds, almost 30,000 pounds less than their peak a year ago.

"A looming recession and continued financial market instability have uncomfortable implications for the housing and mortgage markets, and will undoubtedly affect the pace of recovery in house prices," said Fionnuala Earley, Nationwide's chief economist.

Nationwide said homes were now taking 60 percent longer to sell than a year ago and turnover rates had fallen to their lowest level since this series began in 1974. The precipitous drop in house prices both in Britain and overseas has been a key driver of the crisis that has rocked the banking sector, prompting unprecedented government intervention.

Economic newsflow has continued to be dismal, raising expectations the Bank of England will follow up this month's half-point interest rate cut with further reductions in the coming months.

"The possibility of even deeper rate cuts this year is increasing as the Bank of England attempts to prevent a deep and prolonged recession," Earley said.

"This will make life easier for borrowers on variable rate loans and those coming to the end of fixed-rate deals."

Money markets show investors are betting interest rates, currently 4.5 percent, could be cut to 2.5 percent or below by this time next year.

(Reporting by Christina Fincher; editing by Stephen Nisbet)