Record-breaking falls in house prices have now wiped more than £22,000 off the value of the average home, erasing all the past two years of financial gains for homeowners, figures revealed yesterday.

Average house prices tumbled by another 1.7 per cent last month, equivalent to more than £3,000, adding to a series of plunges in home values since the spring, Halifax, Britain’s biggest mortgage lender, said.

This pushed the drop in house prices suffered since the market’s peak to 11 per cent, taking the annual fall into double digits for the first time since the end of the last recession in 1992. Prices have fallen 7.6 per cent since April alone.

Despite calls for a cut in interest rates, the Bank of England held them at 5 per cent for the third consecutive month as it pursued its goal of curbing inflation.

The price of an average home is now £177,351, just a couple of hundred pounds less than in July 2006, but £22,249 lower than in August last year when prices peaked at £199,600.

Economists now say that property could lose as much as a fifth of its value before the market begins to recover, a poll by Reuters showed. This would cut the average house price to £160,000. But some economists have an even gloomier outlook, forecasting that prices will tumble by 30 per cent from the market’s peak, taking the average house price to £140,000.

Further falls in house prices will raise the spectre of Eighties-style negative equity” for thousands more homeowners. About 70,000 borrowers already owe more on their property than it is worth, research by Standard & Poor’s, the credit ratings agency, showed. Those in negative equity who want to move house, or who fall behind with their mortgage repayments, will have to sell their home at a loss.

House price falls have been exacerbated by the seizure in mortgage lending due to the credit crisis.

Lenders, struggling to secure funding during the credit crunch, have been demanding heftier deposits and much higher interest rates on their loans to protect their margins. First-time buyers who do not have at least a 5 per cent deposit will not secure a deal easily while the best rates are reserved for those with a deposit of 25 per cent or more. The lack of buyers means sellers are being forced to cut their prices to secure a sale.

The financial pain from tumbling house prices comes as families suffer an increasing squeeze from soaring fuel, food and energy prices. The cost of food has risen by nearly 10 per cent over the past year, while the price of a tank of petrol for a midsize car is now nearly £10 more expensive.

The battle to quell rising inflation lay behind the decision to keep interest rates on hold. Inflation hit a ten-year high of 3.8 per cent last month, nearly double the Bank’s 2 per cent target. The Bank has already indicated that it expects inflation to rise to more than 4 per cent this year, but many economists now expect that it will leap to 5 per cent in coming months.

The toll from the credit crunch on Britain’s biggest high street lenders was underlined yesterday as Barclays revealed a 33 per cent collapse in first-half profits to £2.8 billion. The bank was hit by a total of £2.4 billion of souring loans and said that it had written off £288 million of debts to personal customers in Britain. Royal Bank of Scotland is expected to deliver dismal results today, analysts predicting a pretax loss of more than £1 billion – the biggest loss ever by a British bank.

Increasing numbers of borrowers are encountering difficulties with their mortgage payments as bills soar. The number of borrowers who have missed three or more mortgage payments has more than doubled to 300,000 over the past year, Financial Services Authority figures show.

There has been some good news for homeowners in recent weeks as some mortgage lenders have cut their rates. Nationwide will cut the rates on some of its two and three-year deals by up to 0.25 percentage points tomorrow. This week Halifax cut its rates by up to 0.38 percentage points while Abbey trimmed its rates by up to 0.10 percentage points.

But even with these cuts, mortgage rates are still far higher than they were two or three years ago. A borrower with a £200,000 mortgage and 10 per cent equity in their home coming to the end of a two-year deal with Nationwide will still have to find an extra £230 a month if choosing another two-year fixed deal with the lender.

About 1.5 million people reach the end of their mortgage deals this year.

Money Central: 25 tips to sell your home in a downturn

‘Darling seems to be dithering’

Analysis: James Charles

Graham Smith, 41, and his partner, Candice Niven, 35, are considering postponing their property search until November after hearing that the Government may suspend stamp duty to boost the housing market.

The couple, who are members of The Times Credit Crunch Jury, have been trying to sell their two-bedroom flat in Newcastle upon Tyne for £135,000 but have had only one viewing in five weeks. “It is not ideal to wait for three months because winter is not a popular time to move but it might help our chances of selling our flat,” Mr Smith said.

However, he is cautious about the impact of the Chancellor’s moves to kick-start the housing market. He has lost all confidence in the Government to find a solution to the housing woes and fears that it is not doing enough. Primarily, he is frustrated that full details of the plans have not been released. “The Government needs to take decisive action. Instead, it appears to be dithering again, which gives me no confidence at all. I would like to think Alistair Darling had a plan but it doesn’t look like it,” he said.

Mr Smith and Ms Niven, who have a 15-month-old daughter, work as physiotherapists, earning about £40,000 a year.

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