Nationwide has said that house prices fell by 0.5 per cent in December - the second consecutive month of price drops recorded by the lender's index.

November saw Nationwide reveal a 0.8 per cent fall in prices, and the latest study finds the building society cautious over the year ahead.

With the group already predicting that house price growth will be flat in 2008, even further interest rate cuts may not ignite the market as they have done in the past, according to Nationwide chief economist Fionnuala Earley.

"It seems unlikely that there will be a big recovery in activity and prices mirroring the 2005 experience," Ms Earley commented.

"This is mainly because housing affordability is starting from a much worse position than in 2005, while interest rate cuts have started from a higher and more restrictive level. Therefore, this time around lower interest rates are more likely to stabilise market activity rather than re-ignite it," the economist added.

Earlier this week Hometrack reported that house prices fell by 0.3 per cent in December.

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