House prices suffer biggest monthly fall since crash of early 1990s as cost of average home plummets by 5000

The Nationwide Building Society said prices had dropped by 2.5 per cent  -  equivalent to £1,200 a week  -  since April to an average of £173,583.

The value of property has now declined for seven months in a row, drawing warnings that the market could fall by more than ten per cent both this year and next.

Crisis: House prices slid for the seventh successive month, which is the longest consecutive period of decline since 1992

However, Bank of England policymaker David Blanchflower has warned that average prices could be a third lower by 2010.

In theory, this should be good news for firsttime buyers hoping to get a foot on the property ladder. However, a home loan drought is locking them out of the market.

Banks and building societies have slashed the number of mortgage deals available and put up interest rates on many of those that remain.

The Nationwide itself cut the value of home loans offered to buyers by 40 per cent in the last financial year.

A spokesman for Capital Economics said: 'The sheer size of the drop in house prices, without the economy having yet slowed significantly, suggests that this housing market correction will be deep and prolonged.' 

The Liberal Democrats' shadow chancellor Vince Cable said: 'This freefall in house prices is becoming worryingly reminiscent of the Tory recession of the 1990s.

'The reality is that the housing market has been seriously overvalued for some time thanks to massive consumer debt.

'It is essential that we protect families in danger of losing their homes, ensuring repossession is only ever an extreme last resort. Otherwise, the housing market may well suffer the same massive crash that we saw under the last Conservative government.'

Nationwide suggested the Bank of England's Monetary Policy Committee should cut interest rates to fend off a collapse in consumer confidence.

But the committee faces a dilemma because its target is to keep the Consumer Price Index, the official measure of inflation, below two per cent.

The figure is already at three per cent and is predicted to climb higher. Any decision to cut the base rate could see inflation  -  which is being driven by higher fuel and power costs  -  rise more quickly.

The Bank of England has tried to alleviate the lending paralysis by pouring £50billion of cash into the UK banking sector.

The Chancellor, Alistair Darling, backed the move on the basis that the banks would respond by relaxing their clampdown on lending.

However, there is precious little evidence that they are fulfilling their side of the bargain. Meanwhile, a survey published today shows that consumer confidence has gone into meltdown.

Confidence about personal finances is at the lowest level since 1995, while expectations for the wider economy are at their worst since1990, according to Gfk NOP. Rachael Joy of the market research organisation said: 'Consumers' confidence in the economy over the next year, plus a reluctance to make major purchases, reflects the popular expectation of a recession.'

A Government spokesman played down the significance of the figures. 'It is important to remember that UK house prices are 39 per cent higher than five years ago,' he said. 'The long-term demand for housing remains high.'

Home Information Packs have been branded a waste of time and money after it emerged that half of homebuyers are being forced to pay for duplicate and additional information on their new property.

The Conservatives said MDA, a Canadian firm which is offering HIPs in the UK, admitted more than 50 per cent of buyers' solicitors are insisting on replicating surveys and searches covered by the packs.

HIPs, which the seller must pay for and can cost more than £500, include a 'green' rating and information such as local authority searches and proof of ownership.

The packs were introduced by the Government with claims that they provide key information to buyers and so speed up purchases.

According to estate agents, only one in eight is being produced within the target time of four to five working days, while 31 per cent are taking longer than three weeks.

A Government poll found 41 per cent of buyers thought the new packs actually make purchasing a home more difficult.