Halifax said that prices dropped by 0.5 per cent last month, taking the annual rate of house price inflation down to 12.1 per cent, from 13.7 per cent in January, the lowest level for three years.

The drop came after two months for which Halifax reported price rises, which had led some to speculate that the market might have turned a corner. Prices rose by 1.4 per cent in December and 0.7 per cent in January.

The Nationwide Building Society this week said prices rose 0.5 per cent in February.

Ed Stansfield, property economist of Capital Economics, said that the data gave a “confused picture” of what was happening. “Given the volatility of the data in recent months, it makes sense to look at the bigger picture, which remains one of a weak market,” he said There were signals in the Halifax data that despite the drop in prices, activity might be stabilising. Its estate agents reported a second consecutive improvement in sales agreed in February.

Prices have risen by only 0.8 per cent since July, when the property boom appears to have peaked, according to the Halifax figures. The average house price is now £162,816.

Martin Ellis, Halifax’s chief economist, said: “This continues the mixed pattern of monthly price rises and falls recorded since last summer and is consistent with a gradual slowdown in house price inflation.”

Analysts said the figures added to the chances that the Bank of England’s Monetary Policy Committee would keep interest rates on hold when it meets on Thursday. A Reuters poll of 50 economists found that they were unanimous in expecting the MPC to leave borrowing costs pegged at 4.75 per cent.

George Buckley, of Deutsche Bank, said: “We continue to expect that house prices will fall more aggressively towards the middle of this year, particularly if the long-run relationship between prices and approvals remains intact.”

Figures from the Bank of England this week showed that, in January, loans approved for house purchase fell to 79,000, but mortgage lending was up £7.2 billion.

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