House prices are falling at their fastest rate since records began 30 years ago as the mortgage lending freeze continues to undermine the housing market, the Royal Institution of Chartered Surveyors says today.

Its latest report shows that prices fell by 1.9% in August, taking the annual rate of price deflation to 4.6%. The figures mean that the average property now costs £174,493; £8,320 less than a year ago, with £3,871 of that drop occurring last month.

In a big blow to the government, which claims Britain is well-placed to withstand the global economic downturn, the RICS paints a bleak picture, in which the number of estate agents saying house prices rose, rather than fell, has dropped to the lowest point since the survey began in 1978.

Prices in London fell by 3.2%, the first monthly fall since the Registry started publishing its figures in 2000. Two months ago the Land Registry was suggesting that prices across England and Wales were, on average, still 0.1% higher than a year ago.

Nationwide said the slowdown was still being driven by the lack of cheap mortgages. Average two-year fixed mortgage rates are now at an 11-year high at 7 per cent according to Moneyfacts.

Home buyers also now have to provide higher desposits and arrangement fees have risen sharply.

Downing Street knows the current economic difficulties have created the most difficult period for Brown since he entered No 10 last year. Labour loyalists are threatening to rebel against the government next week over the abolition of the 10p starting tax rate which has hit childless couples.

Global Insight forecasts house prices to fall by 12 per cent in both 2008 and 2009, before gradually flattening out during 2010. As a result, house prices are seen falling 24 per cent in nominal terms from their October 2007 peak of £186,044 to stand at £141,003 at the end of 2009 (based on the Nationwide measure).

Both the monthly and annual falls recorded in August were the biggest so far seen by the Land Registry, whose figures are based on prices actually paid at completion of the sale.