UNITED Kingdom house prices have dropped by the most in at least 17 years in October as banks tightened credit and the prospect of a recession deterred potential buyers, according to Nationwide Building Society.

The average cost of a home fell14.6 percent from a year earlier to 158,872 pounds (US$261,000), the largest decline since the survey started in 1991, the Swindon, England-based mortgage lender said in an e-mailed statement yesterday obtained by Bloomberg News. Prices slid 1.4 percent from September.

One in 10 mortgage holders may soon owe more than their homes are worth, Bank of England forecasts show, stretching home owners as banks curtail lending.

With the economy contracting for the first time since the start of the 1990s and unemployment rising, economists say house prices in the area may have further to fall.

"A looming recession and continued financial-market instability have uncomfortable implications for the housing and mortgage markets," Fionnuala Earley, chief economist at Nationwide, said in the statement. That "will undoubtedly affect the pace of recovery in house prices."

Bank of England policy maker David Blanchflower said on Wednesday that Britain faced a "deep and long-lasting" recession unless rates were soon cut "significantly."

While the central bank on October 8 slashed its benchmark rate by 50 basis points to 4.5 percent, Capital Economics Ltd on Wednesday forecast it would fall as low as 1 percent.

UK policy makers are trying to ease strains in credit markets along with colleagues at the Federal Reserve and other central banks.

The Fed on Wednesday cut its benchmark rate by 50 basis points to 1 percent, matching a half-century low.