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By David Milliken
LONDON, Jan 29 (Reuters) - British house prices fell 1.3 percent in January, making the average home worth 16.6 percent less than a year earlier, the biggest annual fall on record, data from mortgage provider Nationwide showed on Thursday.
The monthly decline followed a 2.5 percent drop in December and means house prices are now more than 18 percent below the their peak in October 2007, at an average 150,501 pounds ($215,200).
"There is no sign that the decline in house prices, and hence the surge in negative equity, is yet close to ending," said Citi economist Michael Saunders.
He noted the year-on-year drop was not only the biggest since Nationwide's monthly index began in 1991, it was also bigger than any year-on-year decline recorded in their quarterly index which goes back to the 1950s.
Nationwide economist Martin Gahbauer said falling prices and interest rates were failing to translate into sales because the deepening recession meant potential home-buyers were too worried about their jobs and still faced difficulty getting mortgages.
"A pre-condition for recovery in the housing market is an end to the deterioration in the wider economy," he said.
After tripling in value since the start of the decade, British house prices have tumbled since late 2007 because of the reduced availability of mortgages and the darkening outlook for the economy.
As well as a slower pace of monthly decline the 4.0 percent fall in house prices in the three months to January was smaller than the 4.2 percent decline in the last three months of 2008, but Nationwide was not ready to say the pace of decline was beginning to level off.
"It is too early to say that this marks the start of a sustained improvement in the short-term trend," Gahbauer said. (Reporting by David Milliken; Editing by Andy Bruce)