UK house prices were 1 per cent lower during April compared to a year earlier, the first year-on-year fall for 12 years, according to building society Nationwide.
Higher mortgage rates and tighter lending criteria meant buyers stayed away from the property market during April, causing the average house price to fall 1.1 per cent from March to £178,555 sterling.
This means the average price is now 1 per cent or £1,759 lower than a year earlier, the first time the annual growth rate has been in negative territory since March 1996.
Nationwide chief economist Fionnuala Earley said the fall in prices reflects the steep decline in mortgage approvals seen over the past six months.
"The fall in transactions has pushed up the stock of unsold property on the market and improved the bargaining power of buyers, thus pushing down on prices," she said.
Yesterday, the Bank of England reported that mortgage approvals during March totaled just 64,000, the lowest level since records began.
Ms Earley added that the fall in house prices is likely to spell trouble for the rest of the UK economy in the coming months.
"With house prices no longer rising, consumers are likely to become more cautious in their spending habits, contributing to a weakening of the overall economy," she said.