The latest house price index from Nationwide shows that the cost of the average UK home has declined almost £7,000 since October of last year.

In March, the index fell for the fifth consecutive month, by 0.6%, or just over £1,000.

The slide in prices over the past six months totals just less than 3% and has reduced the annual pace of house price inflation to a 12-year low of 1.1%.

Despite widespread predictions that house prices would stagnate during 2008, economists are now warning that the property downturn could be more severe, partly because the two cuts in the base rate since December have had little effect on mortgage interest rates, which continue to rise.

Nationwide had been among those forecasting that residential property values would, at worst, remain flat this year but that view has now changed.

Fionnuala Earley, the building society’s chief economist, says: “The outlook for UK house prices is clearly more downbeat than at the time of our November forecast. Some of the downside risks we identified then have become a reality - most notably the continued turmoil in the financial markets.”

However, Ms Earley stresses some positive aspects of the current market adding: “A moderate fall in house prices at this stage should not be unwelcome and should help to ensure stability in the market.”

Howard Archer, of economic forecasting consultancy Global Insight, says: “The Nationwide data indicates that house prices are continuing to buckle under the substantial pressure from affordability constraints and markedly tighter lending conditions. The current escalation of the credit crunch means there is an increased risk that a significantly sharper housing market correction may happen.”

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