House prices in Britain plunged last month by the worst figure since the financial crisis in the early 1990s.

Halifax, the country’s largest mortgage lender, revealed today that March prices dropped by 2.5 per cent, the biggest monthly fall for 15 years, beaten only by a 3 per cent fall in September 1992 when on "Black Wednesday" John Major's Government took sterling out of Exhange Rate Mechanism. The fall last month took the annual three-month rate of house price inflation down to 1.1 per cent and the average house price to £191,556.

Analysts had forecast a monthly fall of 0.4 per cent and an annual three-month gain of 2.3 per cent.

The sharp drop - from a 0.3 per cent price dip recorded in February - will increase pressure for a rate cut on Thursday and ignite the debate over whether this should be larger than the expected 0.25 per cent. Base rate is now 5.25 per cent.

BACKGROUND

• The crunch gets personal

• Q&A: is there any chance of some good news?

• Don't panic, but don't dally either

• Q&A: how to survive the mortgage drought

• Who has increased rates and by how much

Opening bids: Banks must heed the property lessons of the 1990s too

BACKGROUND

• High earners denied mortgages

• Families at risk of negative equity

• Mortgage famine points to rate cut

• The death of the two-year mortgage deal

• Savills fears City bonus impact on property

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It appears to show that the rapid withdrawal of 100 per cent mortgage loans - with Abbey yesterday being the last lender to abandon such a loan - the demand for higher deposits and the raising of rates on mortgages has driven a sudden slowdown in the housing market.

Halifax said the worst falls were in the West Midlands (down 5 per cent) and Wales, down 4.7 per cent, prices in the South East were unchanged and areas such as Greater London, East Anglia and the East Midlands still growing.

Halifax's chief economist Martin Ellis said: "Overall, we expect there to be a modest (low single digit) decline in UK house prices this year. Any declines, however, should be viewed in the context of the significant price rises over recent years.

"UK prices have increased by 171 per cent over the past ten years and by 51 per cent over the last five years. The average UK price has risen by £120,860 during the past decade from £70,696 to £191,556."

Richard McGuire, Economist at RBC Capital Markets said: "We suspect that the discussion at this week's MPC meeting will not be over whether to cut or to hold but whether a 25 basis point or 50 basis point cut might be more appropriate."

The data from the Halifax follows the Nationwide reporting that house prices fell by 0.6 per cent month-on-month in March, a fifth successive decline. Latest figures from the Bank of England show that mortgage approvals edged down to 73,000 in February from 74,000 in January. This was the second lowest level since current records began in 1999.

Howard Archer of Global Insight said: "The increasing danger of a sharp housing market correction heightens pressure on the Bank of England to cut interest rates by a further 25 basis points from 5.25 per cent to 5 per cent on Thursday, even though this may only have a limited impact in bringing down mortgage rates overall given the lack of liquidity and elevated market interest rates. We expect the Bank of England to act, despite still serious inflation risks."

He raised his forecasts for house price falls from 5 per cent this year and next to 7 per cent this year and 8 per cent next year and warned that falls could get even worse. "Current rapidly deteriorating sentiment over the housing market also heightens the risk that house prices could fall more sharply. There is a very real danger that a drop of more than 20 per cent in house prices could occur over the next couple of years."

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