The Halifax data also shows that house prices are now 3.8 per cent less than this time last year. However, the bank is keen to stress that these price drops should be measured against the significant price increases in recent years.

According to the study, house prices rose by a massive 79 per cent between 2002 and 2007, an average increase of £88,000 per house. The Halifax put the decline down to the difficulties currently being felt by potential home buyers who are finding it harder to get a mortgage as a result of the credit crisis.

Chief economist at Halifax, Martin Ellis said: “The decline in prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability. These factors have curbed housing demand.”

Meanwhile, as the credit crunch takes hold and households feel the pinch, repossession is becoming a serious threat for some. As the cost of living rises, along with mortgage rates, the Council of Mortgage Lenders (CML) is gearing up for a rise in repossessions.

In a letter to Alistair Darling, the CML – which represents 98 per cent of all mortgage lenders – outlined the range of steps that lenders are taking to minimise the damage that may affect borrowers unable to meet mortgage repayments.

Although the CML reaffirms its 2007 predictions that arrears and possessions will remain low, taking action to prevent such damage indicates an increased risk. Repossession is already seen as a last resort, and the Financial Service Authority (FSA) rules require all lenders to have arrears management policies to prevent it.

The CML is working with the Government to improve its existing policy and to help consumers in other ways such as warning them when they are moving to higher rates after an initial deal.

CML director general, Michael Coogan concluded the letter to the Chancellor, saying: “With a worsening economic environment, and incomplete safety net for borrowers, we cannot be complacent about prospects and the challenges facing borrowers, lenders and public policy makers.

“We will continue to work closely with Ministers, and look forward to a clear statement of the Government’s own position on the safety net for borrowers.” He added.

© Fair Investment Company Ltd