House prices plunge by £30,000

The storm clouds over the economy darkened today with grim figures from the housing market and the high street.

Mortgage lender Nationwide said the London property collapse is accelerating as a direct result of the financial crisis - and warned that the situation will get worse.

Prices in the capital have dropped a record 9.4 per cent in the past year, wiping nearly £30,000 off the average value of a home, the building society said. The average price in London now stands at £274,124, down from £302,486.

Further gloom came with Marks & Spencer's announcement that its sales were down by 6.1 per cent in a year, as once loyal customers switched to cheaper stores to cut their bills.

The latest batch of bad news heightened fears that there is no end in the sight to the worsening downturn. Nationwide chief economist Fionnuala Earley said: "The turbulent events within the City have clearly not been helpful for overall economic sentiment in the capital, and it is quite probable that going into the final quarter of the year, the aftermath of September's financial market gyrations will have a further negative impact on house prices in London."

Nationally, the average value of a home tumbled 12.4 per cent last month from £184,723 a year ago to £161,797 - a fall of almost £23,000. Prices fell more than £3,000 in September alone. Ms Earley said the past 12 months had seen "some astonishing and unpredictable developments in the housing and financial markets".

City economists branded the Nationwide figures "pretty ugly" and warned the slump in the market will be deeper and longer-lasting than previously thought.

In September last year, when the credit crunch had just begun, house prices were rising at a rate of nine per cent and 40 per cent of first-time buyers were borrowing more than 90 per cent of the value of the home.

Today, prices are falling at record rates, mortgage lending has dried up, and less than 20 per cent of first-time buyers are borrowing above 90 per cent.