In the month of February UK house prices fell another 1.8%. This has pushed the cost of a home below £150,000 mark. According to Nationwide building society the average property price in UK is now at £147,746 which is £31,612 less than a year ago.

The chief economist at Nationwide Fionnuala Earley says ‘The dramatic cuts in interest rates have improved the affordability of houses, but it has yet to increase the transaction activity to sufficiently boost the house sales, or stop the slide of house prices falling further’.

However, this was in sharp contrast to the figures reported by Halifax last Month that showed house prices rose by 1.9% in January. Seema Shah of Capital Economist says ‘These figures reveal a sharp drop in the house prices and dash any hopes that the housing market will start on a stronger footing in 2009. Unfortunately if this trend continues the house prices could drop around 30% below their peak by December.’

This has the potential of causing a mammoth disaster as millions of home owners fall into the trap of negative equity. According to various figures up to 5 million people could be paying mortgages which are higher than the value of their homes. It has been estimated that as much as 3.8 million home owners are facing a serious decline in the value of their property compared to the amount of borrowing by the end of the year. If house prices drop by another 10 to 20% by the end of the year then another 1.2 million home owners could be facing the prospect of negative equity.

However, according to the institute of chartered surveyors, some recent data has suggested that the new buyer enquiries have increased for the last three months in a row. But analysts warn that these enquiries need to be converted into actual sales to have any impact on the sluggish UK housing market.

On a positive note, a third of UK borrowers have seen their monthly mortgage payments reduce by an average of £240 since the interest rates have started falling. As the interest rates have dropped from a high of 5.5% at the end of 2007 to 1% this month, the average monthly mortgage payments have fallen by a third, leaving home owners with extra cash in their pockets.