According to the latest monthly report from the Halifax, house prices fell another 1.7 percent last month, taking the annual rate of decline down from 6.1 percent to 8.8 percent.

The Halifax has calculated that the average house price in the UK is now as low as it was in June 2006 - £177,351.

The bank said that demand from buyers had been “significantly curbed” due to high prices, a lack of mortgage funds, and the squeeze of household finances.

Suren Thiru, the Halifax’s economist, said: “Pressure on householders’ income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers’ ability to enter the market.”

“This is resulting in both lower prices and activity levels,” he added.

The Halifax survey if similar to that of its mortgage lending rival Nationwide, which recently calculated that UK property prices had fallen by 8.1 percent in the year to July.

Jin June, the Halifax forecast that house prices would probably fall by about 9 percent over the course of the year. However, the new figures suggest that prices have fallen by 10 percent in the first seven months of the year so far.

With mortgage approvals down by 69 percent in the past 12 months, activity in the property market looks likely to fall much further, with many analysts predicting a fall of around 20 percent over the course of this year and the next.

Standard & Poor, the credit ratings agency, suggested that a fall of this magnitude might send 1.7 million households into negative equity, where the size of a borrowers mortgage debt exceeds the value of their property.