The latest Nationwide house price figures show that prices have been dropping consistently for the past 6 months, and have fallen by 1% when compared with house prices in April 2007. This has come hot on heals of mortgage approvals on new homes falling by an annual 44% in March.

Nationwide's Chief Economist, Fionnuala Earley, said: "April's fall in prices continues the trend of the last six months and reflects the weakening sentiment in the market brought about by poor affordability and tighter financial market conditions. This is the first year-on-year fall in prices since March 1996 and brings the price of a typical house to £178,555, £1,759 lower than at this time last year.

She went on to say: "The latest fall in house prices follows from the steep decline in house purchase transactions over the last half year. As a result of falling demand from first-time buyers, higher mortgage rates and tighter lending criteria, the number of mortgages approved for house purchases has fallen to record lows. 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."

Many industry figures are urging calm. The National Association of Estate Agents, Peter Bolton King, suggested that latest figures should be seen in context of the property boom of the past few years.

"We have been experiencing huge price leaps of double percentage points in the housing market in recent years so overall a one per cent drop is a tiny proportion of the rise... there is no denying that the credit crunch has affected confidence in the market but it is still important to remember that the underlying factors that support the property market remain: low unemployment, historically low interest rates and a pent-up demand for houses."

It remains to be seen whether Mr Bolton King has under- estimated the scale of the banking crisis, his comments coming as Merryll Lynch close their niche lending brands Mortgages PLC and Wave.