The society's house price index fell by 0.7 per cent last month, producing a drop of 0.3 per cent over the year.
Both Halifax and Nationwide Building Society, which on Thursday recorded a 0.6 per cent rise in August prices, have sharply downgraded their new year forecasts of an annual increase in house prices of 5 per cent. Halifax now predicts that there will be no increase, and Nationwide believes prices will rise only marginally.
Evidence of a stalling of a recovery in house prices comes ahead of next Wednesday's monthly meeting between the Chancellor, Kenneth Clarke, and Governor of the Bank of England, Eddie George, to discuss interest rates.
Gary Marsh, Halifax's head of group corporate development, said the number of houses being sold was substantially lower than at the beginning of the year.
'Prices are very flat at the moment. The market has been flat since tax changes came into effect, earlier in the year,' he said. 'The increase in the interest rates on fixed-rate mortgages has also slowed down demand.'
In contrast, the price of new houses rose 2.2 per cent over August. New houses are now 2.6 per cent more expensive than a year ago.
The fact that house prices will not rise over the year means that the hundreds of thousands of people with negative equity on their property will be unable to move.
The building societies predict that negative equity will continue to hold back real recovery in the housing market for some time.
Mr Marsh said that if the volumes of house sales continued to fall as they had been doing then there was a danger that house prices would actually decline over the year, increasing the debt for those people with negative equity.
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