House prices fell at their fastest rate for 19 months during May as buyers continued to stay away from the market.
Homes lost 4.2 per cent of their value, based on average prices during the three months to the end of May, compared with the same three-month period of the previous year, according to Halifax.
It was the biggest annual drop recorded since October 2009 and left the average home costing £160,519.
Prices also continued to drift lower on a quarter-on-quarter basis, which is generally seen as a smoother indicator of market trends, with homes losing 1.2 per cent of their value on this measure, unchanged from the drop recorded for the three months to the end of April.
The typical home now costs 1.4 per cent less than it did at the start of the year, although prices edged ahead by 0.1 per cent during May itself, following a steep 1.4 per cent drop in April.
Martin Ellis, Halifax housing economist, said: “Low earnings growth, higher taxes and relatively high inflation are all putting pressure on household finances.
“Confidence is also weak as a result of uncertainty about the economic and employment outlook. These factors are probably constraining housing demand and applying some downward pressure on prices.”
But he said the group expected a “moderate improvement” in the economy during the rest of the year, and this, combined with ongoing low interest rates, should help to support housing demand.
He said: “This should prevent a further marked fall in prices and help to stabilise property values later in the year.”