LONDON (Reuters) - British house prices fell by a bigger-than-expected 1.8 percent in February for a record annual decline of 17.6 percent, figures from mortgage lender Nationwide showed yesterday.

The 15th consecutive monthly fall took the price of an average house down to £147,746 ($211,000), the lowest level since April 2004 and 20.6 percent down on the peak of over £186,000 reached in October 2007.

A bleak economic outlook and a shortage of mortgage finance has sapped Britons' confidence to make what for most is their biggest investment, and a cut in Bank of England rates to one percent from five percent in October has failed to restore demand. "Sharp cuts in interest rates have helped affordability, but have not yet affected housing market confidence sufficiently to boost the levels of new transaction activity or slow the pace of house price falls," said Nationwide economist Fionnuala Earley.

Nationwide said that changes in borrowing costs since December 2007 had reduced the cost of an average monthly mortgage payment by £226 for borrowers with a standard variable rate, pointing to confidence rather than finance costs as the main barrier to new sales.

"Further cuts in rates will be welcome in the housing market, but the economic conditions that require them will mean that there is unlikely to be a swift turnaround in the housing market in 2009," Earley said.