House prices are falling at a record rate because of the credit crunch, according to one of the country’s biggest building societies - but it’s not all bad news.

The 8.1 per cent annual decline came after house prices dropped by 1.7 per cent in July, said Nationwide – the biggest annual fall since it began its housing survey in 1991.

The average home now costs £169,316, which is nearly £15,000 cheaper than in the same month last year.

Property prices have now been falling for nine consecutive months, but Nationwide points out they are still almost £11,000 higher than three years ago. Although a quick fix is unlikely – and if you’re a first-time buyer falling prices can be a godsend – the message to home owners appears to be hold on tight as better times could be just around the corner.

This was highlighted by another report that claims the average house price in England will rise by 25 per cent over the next five years to reach £274,700.

The document, researched by independent economists Oxford Economics for the National Housing Federation, forecasts house prices will fall in 2009, start to recover in 2010, and then rapidly increase from 2011.

The paper, entitled Home Truths 2008, says that house prices will increase by: