House prices fell 2.3 per cent in February, continuing the downward trend despite an increase in January.

According to Halifax, the UK’s biggest mortgage lender, house prices fell 2.3 per cent in February after January’s two per cent increase, taking the annual decline to 17.7 per cent.

Martin Ellis, housing economist for Halifax, said: “Whilst market activity remains at very low levels, there are some tentative signs that activity may be beginning to stabilise.

“Continuing pressures on incomes, rising unemployment and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are, however, likely to mean that 2009 will be another difficult year for the housing market.”

The ‘tentative signs of activity’ are Bank of England industry-wide figures showing that the number of mortgages approved to finance house purchase was unchanged between December 2008 and January 2009, Halifax said.

David Smith, senior partner at Dreweatt Neate estate agents, said: “House prices may have fallen further, but we are now at the point, or certainly very close to the point, at which buyer and seller expectations converge.

“While transaction levels overall remain low and mortgage finance is still difficult to secure at higher loan-to-values, we are seeing increased traction in the market and firmly believe that now and the next six months are the trough for house prices.”

The UK average house price is now £160,327, close to the level in August 2004 (£159,799).

The house price to average earnings ratio has also fallen to its lowest level in six years at 4.42, from a peak of 5.84 in July 2007.

However, the long-term average is 4.0, suggesting prices may still have a way to fall.

Capital Economics now predicts house prices to fall 20 per cent this year and a further ten per cent in 2010.