Property market slumps by 40% in a year while fall in house prices in London is fastest in UK

The number of properties sold has tumbled by 40 per cent in a year.

In May, only 100,000 homes and offices which had been put up for sale found a buyer, according to HM Revenue and Customs.

The figure highlights the speed of the decline in the country's property market, with prices falling faster than at any time for more than 25 years.

The news comes as new figures show that London has seen its biggest monthly fall in house prices for three years.

Properties that came on to the market this month were, on average, £4,500 lower than in May.

The 1.4 per cent fall, compared with a national average of 1.2 per cent, was the biggest monthly drop since 2005, when prices fell 0.7 per cent in one month.

It suggests vendors are at last realising overpriced homes will not attract buyers and that the capital's property market is not resilient to the credit crunch, while supporting predictions of substantial price falls to come.

In July last year before the credit crunch struck, more than 160,000 homes were selling every month.

But the number has been falling nearly every month ever since, down almost 40 per cent in May compared to the same month last year.

Experts warned yesterday the situation is likely to get even worse, with buyers continuing to disappear.

Thousands of people are too scared to buy at the current time because they expect prices to fall even further in the coming months.

Others want to buy but cannot find a lender which is prepared to give them a mortgage, or at a rate that they can afford.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: 'These numbers clearly highlight the very real pressure on the residential property market.

'Indeed, we suspect that the level of activity will fall further over the coming months.'

The Council of Mortgage Lenders expects the number of homes sold this year to be just 770,000, compared to more than one million last year.

The few remaining buyers tend to be people who have to move for various reasons, such as getting a new job in a different part of the country.

Others are buying because they see the current turmoil as a good time to get a bargain by negotiating a massive discount.

But they make up a small army of willing buyers, compared to much larger band of people who are abandoning the market.

Lord Oakeshott the Treasury spokesman and a property expert, said: 'Britain’s mortgage famine, after the wild feast led by Northern Rock, means most house sales are now forced and at knock-down prices.

'In this horrible market, you only sell if you have to.'

Howard Archer, chief UK economist at the consultancy Global Insight, said: 'It seems certain that most sellers will be unable to shift their property if they do not price them competitively.'

He said more expensive mortgages, poor affordability and a 'deteriorating economic outlook' are all fuelling the problem.

Mr Archer expects prices to fall by 12 per cent this year and next year before 'flattening out' in 2010.

The property website Rightmove estimates there is now a staggering 15 properties for sale for every buyer in the market.

As a result, it said homes which would have sold within days at the peak of the market last summer are now not even attracting any viewings from possible buyers.

The number of properties which are on the market has also climbed above one million for the first time, according to Rightmove.

HMRC's figures, which exclude properties sold for £40,000 or less, will prove a financial headache for the Government, according to the LibDems.

Lord Oakeshott expects the lethal combination of falling prices and property transactions will cut Labour's stamp duty tax take by around £5billion.

He said: 'Gordon Brown let Britain's house party get out of control. Now Alistair Darling has been left with a £5billion stamp duty hangover.'

His calculation is based on the prediction that house prices will fall 15 per cent and the number of properties sold will halve.

If correct, he estimates this will result in a stamp duty shortfall of £5.2billion compared to the Budget prediction of £9.5billion.