House prices fell again in December, new figures from Nationwide have revealed.

The firm said that the average price of a home in the UK dropped 0.5 per cent during the last month of the year, a slightly smaller fall than the 0.8 per cent drop in November.

Fionnuala Earley, Nationwide''s chief economist, commented that while prices had finished the year "broadly in the range we had expected", the turmoil on world financial markets which emerged in the latter half of the year as the US sub-prime mortgage market took a knock and the problems experienced by the Northern Rock bank had been unexpected.

She explained that while Brits who are seeking to secure prime mortgages are not being too badly affected by the credit crunch, sub-prime loans have become scarcer in recent months.

"There has been a decline in the availability of mortgages at the riskier end of the borrowing spectrum and an increase in their price."

"This will undoubtedly choke off new sub-prime lending in 2008 but may also make it more difficult and expensive for existing sub-prime borrowers to re-mortgage," Ms Earley added.

A number of lenders, including Kensington, have already adjusted their mortgage offerings to take into account the impact of the current financial uncertainty.