A fall in UK house prices may damage the chances of selling Northern Rock, a report says…

Potential buyers of the beleaguered firm need to secure funding of at least £10bn from leading investment banks. But the Sunday Telegraph reports that as UK house prices slip, these banks are reluctant to lend money against Northern Rock's mortgage assets.

Prime Minister Gordon Brown has insisted that the government is keen to avoid nationalising the firm. Mr Brown told BBC One's Andrew Marr Show that the "preferable options" remained private bids which have been made for Northern Rock but said that all options were "still open".

Chancellor Alistair Darling said on Saturday that a decision on the firm's future would be reached within six weeks. Sir Richard Branson's Virgin Money and the Olivant consortium, led by former Abbey boss Luqman Arnold have both made firm proposals for Northern Rock.

Difficult to secure funding

Banks such as Citigroup, Deutsche Bank and Royal Bank of Scotland have already offered to inject cash into a rescue bid for the firm.

And according to the Sunday Times, Goldman Sachs is close to completing a £15bn package. But the Sunday Telegraph reported that fears of falling UK house prices had made it harder to estimate the overall value of Northern Rock's property book - making the funding more difficult to secure.

Loans made to a would-be buyer of the beleaguered bank would largely be secured against Northern Rock's assets. And although most of the mortgages on the firm's books are good, the government has insisted that investment banks offering the funding also take on some of the less safe.

The newspaper said that about one in 10 of the almost 88,000 residential mortgages on Northern Rock's books are now classed as high risk. According to the Nationwide house price index, the average price of UK homes fell by 0.5% in December from a month earlier, having dipped by 0.8% between October and November.

Preventing contagion

Northern Rock hit trouble in August when a jamming of global credit markets meant it was unable to fund its business. It was forced to seek emergency help form the Bank of England.

This prompted the first run on a bank in living memory. The government's aid package for Northern Rock now amounts to about £57bn - including a Bank of England loan worth about £26bn.

It has offered to cover any loss by financial institutions that provide money to Northern Rock so the bank can operate normal banking services. And the Treasury has already guaranteed savers' deposits held at Northern Rock. The move was made to ensure that the Northern Rock received enough funding from the money markets to survive into the New Year.

Mr Brown told the BBC that as well as aiming to protect the deposits and interests of mortgage holders, the government had intervened in Northern Rock to "prevent contagion throughout the rest of the economy".