And now for the pounds 2,500 house ...

DO YOU want to buy a house for less than the price of a car? Cheaper, even, than a Florida holiday for four?

All over Britain, the pounds 2,500 house is now a possible buy. The housing market has collapsed to such an extent that a real house, complete with roof, heating and lighting and sometimes even a garden can be bought - with a credit card even - for less than the value of the bricks and mortar with which it was built.

Houses in pit villages where the mine has closed down are among the cheapest properties on the market, while thousands of former council flats, bought following the introduction of right-to-buy legislation by the Thatcher government, languish on the market, unsold and unsellable.

Take, for instance, the Welsh Valleys. Two weeks ago, a mid-terrace house in Glyncorrwg near Port Talbot was sold at auction for pounds 2,500. Number 16, Commercial Street, did require some repair and refurbishment, but with three bedrooms, living room, kitchen, bathroom, entrance lobby, and backyard, it has what is known in estate agents' vernacular as "potential".

Further north, homes can be bought at similar bargain-basement prices. A two-bedroom, purpose-built flat in Benwell, Tyneside, modernised eight years ago, was sold for pounds 2,500 in a recent auction, and a suburban home in South Bank, Middlesborough, was on the market for the same price. Even in the more affluent market town of Darlington, three-bedroomed, mid-terraced homes can be bought for pounds 10,000.

Cut-price homes can be purchased in the South, too. In Southampton, former council properties are for sale for less than the price of a small hatchback. Number nine, Castle House, Castle Way - a three-bedroom flat - was sold in March for just pounds 3,000.

For those caught in the negative equity trap, the thought of house prices dropping to such rock-bottom levels is the stuff of nightmares. But with the latest Halifax Building Society figures showing that in the past year, prices slipped across the country as a whole by another 1.6 per cent, the pounds 2,500 house is in danger of becoming not just a phenomenon but a trend.

Sue Malcolm of Black Horse Agencies in Darlington is familiar with the "credit card" house, and admits that the implications for home-owners are "quite frightening". But not for entrepreneurs. Small builders, smart developers and private landlords have all spotted the pounds 2,500 house's potential. That, and the Government's policy of paying landlords housing benefit direct. "A lot of people are buying for investment," said Ms Malcolm, "putting in tenants on social security and getting pounds 85 a week."

The developers and landlords can always be found spotting bargains on residential property sale days in auction rooms up and down the country. Kerry Clarke, of the Newcastle-based auctioneers, Keith Pattinson, said last week that some areas have "no domestic demand whatsoever. Houses are sold only to investors who put in a lot of DSS tenants."

The auction catalogues make depressing reading, with page upon page of homes no lender wants to underwrite.

"The building societies are reluctant to lend on properties that need improvement because they need to have some security," explained Steve Boxall, a partner of Derby auctioneers Boxall, Brown and Jones. "And buyers are unable to find the cash they need to do the work before they get a mortgage. That leaves only the cash buyer who sees the property as an investment. He'll say: that is my offer - take it or leave it."

Almost invariably the dilapidated, credit-card houses are repossessions sold off after being left unoccupied for months. The failure to attract individual buyers to the bottom of the market is bound up with the state of the rest of the housing market.

With big housebuilders such as Barratt, Wimpey, and Bellway offering first-time buyers brand new, three-bedroomed semi-detached houses in London for less than pounds 50,000 with mortgage deals, pounds 500 in cash, season tickets and fridges, ovens and hobs all thrown in for free, the prospect of buying a terraced home needing a new roof and rewiring does not appeal.

The latest statistics for the troubled housing market indicate that thousands more homes may be sold off for the price of a top-of-the-range personal computer. More than a million households have mortgages bigger than the value of their homes.

At the end of last month, 1.03 million people's homes had negative equity, according to the Woolwich Building Society. This time last year the figure was 940,000 households. Martin Ellis, the Woolwich's chief economist, believes the figure might well increase again in the third quarter of this year.

Peter Miller, senior spokesman for the Royal Institute of Chartered Surveyors, believes the bottom of the property market will remain clogged for the foreseeable future if the traditional first-time buyer continues to be able to buy what would once have been their second purchase first. That is why, said Mr Miller, "there is market for these properties".

Like most estate agents, MsMalcolm believes the future of the housing market is in Kenneth Clarke's hands. "The Government will decide through its economic policy. It is going to have to make some quite dramatic changes to improve the market or, frankly, it could get worse."

But not all estate agents are complaining about the rise of the pounds 2,500 house. Selling them, says, Mr Boxall, "has become a fashionable form of income for the corporate estate agents, especially when they are linked to the building society.

"The society needs to dispose of the building and the agency knows that once the hammer goes down there is a fee on the way."