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Nationwide's measure of house prices has suffered its first annual fall in 12 years and the pace of monthly decline is increasing, Britain's largest building society reported today. The last time house prices fell year-on-year was March 1996.

Prices are now 1 per cent lower than this time last year, taking £1,759 off the average price of a home in Britain, which is now £178,555.

On a monthly basis, the average price of a home fell by 1.1 per cent in April, twice as severe as economists had expected. That ratcheted up the pace of decline and represented the sixth consecutive monthly drop in prices. The average price in March was down 0.7 per cent, the figures showed.

A polling of 30 economists by Reuters had forecast house prices to fall in April on average by 0.5 per cent.

The monthly drop has only been matched over the past year by the declines in October and November. The pace of decline slowed marginally during December and January but since February has picked up.

Fionnuala Earley, chief economist at Nationwide, poured cold water on hopes voiced by the Chancellor last week that the Bank of England's £50 billion injection of capital into the banking sector would loosen the mortgage market.

Ms Earley said: "The scheme is unlikely to mean that house prices and mortgage lending will return to levels seen at this time last year. Weakening housing sentiment and demand, unrelated to the financial turmoil, will mean that we should expect slower market conditions."

Homeowners and househunters have been hit by a triple whammy of tightened lending criteria, withdrawal of mortgage products and a jump in monthly repayments as thousands come off cheap deals.

The Council of Mortgage Lenders estimates that 1.4 million borrowers will be coming off cheap fixed rate deals this year.

Ms Earley said: "We estimate that a further 400,000 borrowers will come to the end of tracker or discount deals over the whole of 2008, and these borrowers may also face a fairly significant payment shock."

Howard Archer, chief economist at Global Insight, said that he could not rule out mortgage lending remaining depressed until the middle of next year.

He said: "Banks need sufficient funds for responsible lending but the days of 100 per cent loan-to-value lending are definitely gone. I would be surprised if lending picks up suddenly — my view is it will remain depressed for an extended period."

The number of mortgages taken out fell by nearly 50 per cent in March, according to figures from the British Bankers' Association, as the mortgage drought left buyers scrambling to secure home loans in the wake of the credit crunch.

Global Insight forecasts a 7 per cent fall in house prices this year, followed by a 9 per cent decline next year. "I could easily see prices dip by over 20 per cent over the next couple of years," Mr Archer added.

Savills, the property agency, asseses the chances of a 25 per cent slump in house prices over the coming two years at 25 per cent, and a 6 per cent slide at 60 per cent.

The gloomier scenario is based on job losses spreading beyond the financial sector to other industries such as housebuilding.The construction industry is braced for tens of thousands of job cuts after Persimmon, the country's largest housebuilder, said that it would stop building on new sites until market conditions improve. Some contractors feared that the downturn could be worse than the slump between 1989 and 1994, when 500,000 construction workers were laid off.

Ms Earley was keen to differentiate the current housing market from the crash in the early 1990s, saying that the vast majority of homeowners were today benefiting from relatively low interest rates.

The Bank of England cut interest rates this month by a quarter percent to 5 per cent, the the third such cut in five months. During the late 1980s and early 1990s interest rates spiralled up into double digits.

Ms Earley said: "Overall, some groups of borrowers will certainly feel the effects of higher mortgage rates but around 85 per cent of borrowers will be seeing no impact or will benefit directly from reductions in the Bank rate this year.

"This is good news for the overall stability of the housing market and is a significant factor that differentiates the housing market of today from that of the late 1980s and the early 1990s. Back then a much higher proportion of loans were on variable rates and as a consequence were hit quickly by the sharp increase in the Bank rate in the late 1980s. This was a major factor behind the collapse of the market in the 1990s."

Banks and mortgage lenders have, however, faced criticism for their reluctance to pass on cuts in Bank of England base rates to new and existing mortgage customers.

Royal Bank of Scotland and NatWest are cutting their new mortgage rates by between 0.1 and 0.3 per cent.

However from today Abbey will have only one deal left for homeowners with 5 per cent equity — a five-year, fixed-rate deal charging 6.99 per cent interest.

From tomorrow Nationwide will offer loans for 95 per cent only to existing borrowers or people taking out a three-year, fixed-rate mortgage.

Earlier this month Halifax said that it would increase one of its two-year fixed mortgage rate deals from 6.09 per cent to 6.59 per cent, adding £46 a month to repayments on a £150,000 loan.

On a two-year tracker, the rate has increased from 1.49 per cent above base rate to 1.99 per cent, to give a current rate of 6.99 per cent.

Global Insight predicts that the Bank of England may by June cut interest rates by another quarter-point to 4.75 per cent, with rates falling as low as 3.75 per cent by early 2009.