Demand from buyers has fallen, the Halifax says
The house price slump continued in July according to the latest monthly report from the Halifax.
The lender said prices fell another 1.7% last month, taking the annual rate of decline up from 6.1% to 8.8%.
The Halifax said this took the average house price down to £177,351, the value last seen in June 2006.
The bank said demand from home buyers had been "significantly curbed" by the lack of mortgage funds, high prices and the squeeze on household finances.
"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," said the Halifax's economist Suren Thiru.
"This is resulting in both lower prices and activity levels," he added.
The Halifax's survey, which suggests prices are falling at their fastest rate since 1992, chimes with that of rival mortgage lender the Nationwide.
The building society recently calculated that UK property prices had fallen by 8.1% in the year to July.
However, using a comparable methodology to that of the Nationwide, the Halifax's figures would have shown an even greater fall, of 10.9%.
In June, the Halifax forecast that house prices would probably fall by about 9% over the course of this year.
However, figures from the lender indicate that price falls have already exceeded that, falling by 10% in the first seven months of the year alone.
The fall in the past 12 months was less than that only because prices rose in August and December last year.
With mortgage approvals already down by 69% in the past 12 months, activity in the property market looks likely to fall even further.
"With transaction activity at a new low and likely to fall further in the wake of the uncertainty surrounding HM Treasury's comments on stamp duty, it is hard to see any near term relief on prices," said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.
Many commentators suggest prices could easily fall by about 20% in the course of this year and next.
The credit ratings agency Standard & Poor's (S&P) suggested recently that a fall of this magnitude might push 1.7 million households into negative equity.
Negative equity describes a situation where the size of borrower's mortgage debt exceeds the value of their property.
The mini-price war that has broken out among lenders in the past few weeks has continued with the Nationwide cutting the cost of some of its mortgage deals.
The building society is shaving 0.2% off the cost of some of its two- and five-year fixed rate mortgages for people who are remortgaging.
The past month has seen a series of small rate cuts by big lenders, including the Halifax and Abbey, who have started competing again for new business.
Cumulatively this has taken the headline cost of some of the best deals below 6%, for people who can afford to put down a deposit of at least 25%.