House prices fell 1.8% in August, bringing the annual rate of change to -10.9%, the first double digit annual drop since Halifax began its records in 1983, its latest data has revealed. Average house prices are now back to the value they were at inn February 2006.

The 1.8% fall is a similar figure to those of June and July this year, but considerably less than the falls earlier this year in March and May of -2.5%, and Halifax maintains that the stamp duty holiday offered to some buyers will help the situation.

Chief Economist at the Halifax Martin Ellis said: ‘A solid labour market, low interest rates and a shortage of new houses continue to support the market. The pressure on householders’ income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.

‘This week’s announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south east of England. Market conditions, however, will remain challenging’

Economists have said that falls are likely to continue in these conditions, regardless of the Bank of England’s decision on interest rates today. Seema Shah from Capital Economics said: ‘The recent falls in mortgage interest rates have been welcome. However, without an accompanying loosening in lending criteria, few buyers will be able to benefit from these cuts and the positive impact on the housing market will be limited. In any case, regardless of the falls in mortgage interest rates, with the prospect of a recession in the wider economy adding to potential buyers’ woes, the number of buyers entering the market is likely to continue weakening.

‘Ultimately, with neither the economy nor the labour market likely to offer any support to the housing market over the next year or two, and cuts in mortgage rates almost irrelevant in the face of tight lending criteria, it is difficult to see what will put an end to this correction.’