Annual house price growth fell for the ninth month in a row during July to hit a record low, Government figures showed today.
The Department of Communities and Local Government said the average UK property lost 0.3 per cent of its value during the year to the end of July, the first time it has recorded negative annual growth since the index began in 2003.
But despite the fall on an annual measure, the index also recorded a 1 per cent jump in house prices during the month itself.
The increase in property prices during July is out of step with data reported by other house price indexes, with these showing steep falls during the month.
Both Halifax and Nationwide said homes lost 1.7 per cent of their value in July, pushing annual losses up to 8.8 per cent according to the Halifax measure.
The Department of Communities and Local Government (CLG) said the difference between the indexes was likely to be caused by the different methodologies they used, with Halifax and Nationwide both calculating prices according to mortgage approvals, whereas it bases them on completions.
As a result, its data tends to lag behind the other two by up to three months, suggesting the more severe price falls recently recorded by Nationwide and Halifax could show up in the CGL index in the coming months.
The CGL data is also not seasonally adjusted, so July's price rise could reflect the traditional summer increase in activity, despite the more subdued market conditions.
But despite these factors, Howard Archer, chief UK and European economist at Global Insight, said the month-on-month increase was still a surprise and "at odds with other surveys".
He said: "It seems odds-on that house prices will head downwards for some considerable time to come, particularly as lending conditions could well tighten further in the near term at least amid the current turmoil caused by the collapse of Lehman Brothers."
CLG said July's price rise was driven by a 2.3 per cent jump in the cost of flats, while the price of bungalows increased by 1.8 per cent and detached homes rose by 1.2 per cent.
The change left the average home in the UK costing £217,171, up from £215,029 in June.
Annual house price growth is now negative in all regions of the country except Scotland, the North West, East and South East, while in London growth has stalled, leaving average prices unchanged during the year.
But even in Scotland the pace of increases has slowed considerably, falling to just 3.6 per cent for the year to the end of July, well down on an annual rate of 9.7 per cent recorded in January.
In the South East prices have risen by just 0.1 per cent during the year and they have edged ahead by only 0.5 per cent in the North West.
At the other end of the scale, Northern Ireland continues to see the biggest price falls, with homes losing 10.3 per cent of their value in the year to the end of July, with the South West seeing the next biggest drop at 1.9 per cent.
The housing market, which was already constrained by stretched affordability, was further hit by the credit crunch as lenders scaled back their lending and demanding increasingly high deposits.
There have been signs recently that competition is beginning to return to the market, with the majority of the big lenders making repeated mortgage cuts.
But there are fears that the problems at Lehman Brothers will lead to a renewed tightening in wholesale lending, stalling the current recovery.
The CLG figures showed that, while the average house price paid by a former owner-occupier has increased by 0.1 per cent during the past year, the price paid by first-time buyers has fallen by 1.6 per cent.
This suggests that people buying their first home may be settling for cheaper properties in the face of the high deposits lenders are asking for.
A CLG spokesman said: "When looking at trends in the market, it is important to remember that UK house prices are significantly higher than five years ago.
"The current issue affecting the market is largely about the supply of credit - a very different situation to the early 1990s which was about high interest rates and unemployment."Reuse content