Lincoln and Leamington Spa may be only a couple of hours apart by road, but homeowners in the two towns will be feeling very different this morning.

People in the West Midlands, such as those living in Leamington Spa or nearby Coventry and Rugby are nursing heavier losses in the value of their homes than anywhere else in the country, figures from Halifax show.

The average price of a home in the West Midlands fell by 5 per cent, or more than £9,000, to £174,591, in the first three months of this year. In contrast, homeowners in the East Midlands have enjoyed a rise in the value of their property since January. The average price in the region has risen by 2.2 per cent, or £3,639, to £167,069 over the same period.

Wales has been particularly badly hit. For example, in Wrexham, the former property hotspot of the Lower Dee Valley, apparently done deals are unravelling and properties are sticking in the estate agents’ windows.

The South West and Northern Ireland have also lost out, while the South East and Scotland are continuing to see prices rise.

Martin Ellis, chief economist at Halifax, said: “There are big regional variations across the UK, so it’s difficult to talk about a UK market in general. But all regions have seen a slowdown in growth over the past year, so they are all subject to the same economic pressures.” Mr Ellis said that prices in Wales and the West Midlands had fallen sharply because the gains of recent years made it increasingly difficult for borrowers to afford a mortgage.

First-time buyers rubbing their hands at the prospect of cheaper housing will be disappointed. The fall-out from the credit crunch has forced lenders to increase their mortgage rates and tighten their lending criteria and, in some cases, stop offering loans altogether. Bristol & West withdrew all its new mortgages from the market yesterday, while Alliance & Leicester signalled its intention to raise mortgage rates on its most popular deals for the second time in three days. Abbey became the last lender to withdraw its 100 per cent mortgage deal yesterday.

Most lenders now require all customers to have a deposit of between 5 and 10 per cent, so first-time buyers in the West Midlands must save up to £17,400 before being considered for a mortgage.

First-time buyers should not despair, brokers say. Instead they should use this time to cut back spending and start saving. Even if the credit crunch abates, allowing mortgage lenders to become less circumspect in their lending, borrowers with a sizeable deposit will have their pick of mortgage deals. The Bank of Ireland is still offering 100 per cent mortgages if the loan is guaranteed by the parents of the borrower.

This contraction in the housing market is good news for existing landlords as rents are rising. Paragon, the buy-to-let lender, says rental income has risen by 15 per cent in the past year because people who cannot afford to buy have to rent. But the current credit conditions are likely to spell the end of the aspirations of would-be amateur landlords. Lenders will not extend them buy-to-let finance.

While mortgage lenders will continue to struggle to get funds in the coming months, activity in the housing market will remain depressed. This in turn is likely to cause prices to fall further.

At the end of last year Halifax predicted that prices would remain flat this year. It has now suggested that the average price across the country will fall, albeit by a minimal amount.

Nationwide, the second-biggest lender, is forecasting that prices will fall by 5.8 per cent, while Goldman Sachs has predicted that house prices will fall by 5 per cent this year and a further 2 per cent in 2009.

This could be bad news for people who have taken out 100 per cent mortgages. A fall in property values, coupled with increased mortgage rates, will leave thousands in negative equity and unable to keep up their repayments.

In Wrexham, for example, the For Sale signs outside empty properties that often symbolise repossessions are on the increase. In the early part of the decade, the town enjoyed one of the largest house price rises, 35 per cent, over a 12-month period anywhere in the country. In some parts of the town, it was closer to 50 per cent. It was then a commuter bolthole for those who could not afford Chester’s environs.

Those days are long gone. Young families are being told by mortgage lenders that they can no longer have the 100 per cent finance that will allow them on to the first rung of the property ladder. From the first glance in estate agents’ windows, it is obvious that sellers are lowering their expectations. “New price” stickers are beginning to multiply.

Anna Hansen, who wants to sell her two-bedroom terrace house for £126,950, learnt the hard way. A potential buyer for the property, which was placed on the market in December, agreed a sale only to drop out at the last minute when his mortgage lender pulled the plug. The former assistant at Yale College said that the immediate prospects for sellers like her depended on the banks and their lending policies.

Mrs Hansen, who hopes to move to Anglesey, where property prices have fallen even more swiftly, said: “I thought I had sold the house but I am now back to square one.”

The look of gloomy acceptance on estate agents’ faces suggested they did not have to be told that, according to the Halifax, house prices were falling faster than across the border, 4.7 per cent in the first three months of the year.

Whitegates displays advertising to attract first-time buyers and those with a poor credit history. A three-bedroom end-of-terrace property in Llay costs only £74,995 but, it is pointed out, you would have to be a cash buyer and not mind living in a prefab. Inside Anne Clark, the proprietor, said that the days when young couples could expect to borrow the full asking price had disappeared with the “demise of Northern Rock”. Repossessions,are up.

“I do feel sorry for some of them,” she said. “For others I do not. When I see the 42-inch plasma television going out the door you begin to think they prioritised incorrectly.

“We have to adjust our prices downwards. If we do not adjust we do not sell. It is relative because there are savings farther up the line. Uncertainty entered the market with the home information packs.

“Unfortunately it was compounded by the interest rates rising three times in four months and the inability of people to get mortgages is having a profound effect.” She employs simple maths to equate a change in the lenders’ policies to a “six-month blip”. That is how long it will take for a young couple to save the £6,000 deposit demanded on an average first-time buy for the area.

“As for the future, I think we will be doing well just to hold our own. The days of putting a property in the window one day and selling it the next are long gone,” she said.

Some of her best customers now are from Eastern Europe. Barska Jarslaw, 36, a migrant worker from Poland, plans to sell in his native country and spend up to £150,000 on a house near to his children’s school. “Every house, the prices are coming down,” he says.

Why it’s like 1992...

— A sustained period of growth in the housing market followed by a drop in prices

— Slowing economic growth – if growth this year is at the bottom range of Treasury forecasts, it will be the weakest year for the economy since 1992

— Construction slowing. The Royal Institute of Chartered Surveyors recently reported that growth in construction workloads has fallen to its lowest level since 1996

— Low consumer confidence in the US. The Reuters/University of Michigan Surveys of Consumers index fell to its lowest level since 1992 in February

...and why it isn’t

— Interest rates are lower. In 1992, sterling joined the European Exchange Rate Mechanism, which sent rates as high as 15 per cent Unemployment is lower. About 3m were out of work in 1992, compared with about 1m now

— The abolition of mortgage interest relief in 1988 created a market surge followed by a sharp shock

— The credit crunch is a new threat. The IMF estimates it will cost the world economy $1 trillion

— The average house now costs about six years’ pay, compared with three and a half in 1992

Sources: The Treasury, RICS

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• BA chief waives bonus after T5 fiasco
• Prospects of cheaper loans hit as Libor soars
• Rice price dives as US and Japan set to unlock grain pact