This monthly drop, the fifth in a row, marks the longest sustained fall for more than two years.
House prices collapsed by 3.1 per cent in the 12 months to July. This compares with a drop of 1.9 per cent in the year to June and 1.4 per cent in the 12 months to May. Average property prices have fallen by almost pounds 2,000 from the pounds 63,563 recorded in July last year.
Just six months ago, the Halifax was optimistically predicting that prices would rise by up to 3 per cent in 1995. As the scale of the crisis began to emerge, the society's forecasts were revised to a flat market for the year as a whole.
Gary Marsh, a manager at the Halifax, bowed to the inevitable yesterday when he said: "The underlying trend in house prices must now be viewed as falling. At very best, house prices will show no change over the year as a whole and could well show a modest fall."
Halifax's figures follow similar ones from Nationwide Building Society on Monday, showing a 1.3 per cent seasonally adjusted fall in the second quarter of 1995, compared with the first three months of the year.
Nationwide also estimated that about 1.5 million households are facing negative equity - their homes are worth less than the mortgages taken out to buy them. These figures contrasted sharply with the Treasury's own estimates of less than 1 million households facing negative equity.
Halifax is beginning to revise downward its assumptions of a 6 per cent rise in prices in 1996. It predicts the housing market will probably remain static or show only marginal improvement.
"I am not a doom-and-gloom merchant, but at this rate the recovery will be so gradual that it will be hardly noticeable," Mr Marsh added.
"All studies on house prices have shown that personal incomes are key to demand for housing. Next year we will either be in a position of no more tax rises, or even of tax cuts, so the market should improve. But it will not improve by that much on its own.
"Our position used to be that there was no need for specific action by the Government and that an upturn in the economy would be enough for a recovery in the housing market. We now feel that is no longer sufficient.
"Without any action to help the market, what we are likely to see is a situation where prices remain virtually flat next year as well."
Mr Marsh said one step the Government could take at once would be to scrap the 1 per cent stamp duty on all property purchases over pounds 60,000.
"We are seeing a gently falling market on the back of an extremely low level of transactions," he said. "Abolishing stamp duty would immediately increase the level of home purchases and give back some confidence to the market."