Prices were 10.5% lower in August than they were a year ago. Prices fell by 1.9% compared with July. The first time they have dropped by double figures since 1990, according to Nationwide Building Society.

The average home now costs £164,654, which is more than £19,000 cheaper than the average price one year ago.

Gloomy forecasts from house builders shows that house prices have now fallen for 10 months in a row, they have fallen by 10.3 per cent since the beginning of the year.

The rate at which homes are losing value also accelerated in August to 1.9 per cent, from 1.5 per cent and 0.9 per cent in July and June respectively.

Fionnuala Earley, Nationwide's chief economist, pointed out that the longer view was less severe. "While the pace of monthly falls picked up during the month, the less volatile three month on three month measure eased very slightly in August to 4.5 per cent from 4.6 per cent in July," she said.

Data from estate agents suggested "there may be some glimmers of interest returning to the market" as some buyers were taking the opportunity to secure large discounts, said Nationwide's chief economist Fionnuala Earley.

She said that while there was still a great deal of uncertainty, the Bank of England's forecasts for growth and inflation have been widely interpreted as opening the door to rate cuts. "We expect the next move in the bank rate to be down, but the extent to which this will revive the mortgage and housing market is likely to be limited while overall confidence in economic and housing market conditions is low," she said.

The bank also said there had been an increase in the number of people looking to take out fixed rate mortgages rather than tracker loans because they feared the volatile markets could see a climb in rates and affect repayments.

Forty four per cent of borrowers said they were more likely to look for a fixed rate mortgage this year compared to last year, and 43 per cent said they would consider a longer term fixed rate mortgage that they would not have considered last year.

Total lending stood at £24.8bn, up by 5% from June, but still 27% lower than a year ago.

First-time buyers, who would normally benefit from falling prices, have struggled to obtain cheap mortgage deals without a large deposit. However, the cost of fixed-rate mortgages has been falling in recent weeks with a series of lenders cutting their interest rates.

This gloomier feel of the economy in general, as well as rising food and fuel prices and a lack of confidence with jobs made people more prudent with their borrowing. The forecast is that with property prices that were still higher than five years ago, were likely to keep falling this year as there remained a lot of uncertainty in the market.