The data also showed that house prices this quarter were one per cent lower than in the last quarter of 2007. The average cost of a house in the UK is now £191,556 down from £196,649 just last month.

The figures come as the UK struggles to cope with economic instability and turmoil. Despite the housing boom experienced last year, house prices for March fell to just 1.1 per cent higher than this time last year, a significant fall and indicator of the effects the credit crisis is having.

Experts, including Halifax and Nationwide have been forced to recalculate their forecasts for UK house prices as they continue to fall below expectations. Halifax has forecasted further house price reductions throughout the year, its chief economist, Martin Ellis said: “Overall, we expect there to be a modest fall in UK house prices this year. Any declines, however, should be viewed in the context of the significant price rises over recent years.”

In spite of the obvious housing market decline, Halifax argues that the UK’s economy remains strong enough to support house prices. Mr Ellis continues: “Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations.

“Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall.” Mr. Ellis concluded.

As lenders redefine mortgage products and demand larger deposits, Halifax argues that homebuyers are in a stronger position than before simply by owing less.

Commenting on the Halifax house price data, Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (RICS) said: “The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity on the market.

“Loan to value ratios are being lowered at the same point as borrowing rates are being raised putting increasing pressure on first time buyers who are having to find ever larger deposits. There is moreover, a real risk that year-on-year house price inflation will turn negative over the next month or two.”

The Bank of England’s Monetary Policy Committee (MPC) is due to meet on Thursday to decide whether to cut the base interest rate. Experts are torn but it is largely thought that the MPC will vote for a cut of 0.25 per cent. However, if the MPC does decide to cut the rate there is no guarantee that mortgage lenders will pass this cut on to home owners.

© Fair Investment Company Ltd