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The latest house price index from the Halifax reveals average property prices in the UK continued to plummet during August.

With prices falling by an average of 1.9 per cent in August alone, the annual decline in prices now totals 10.9 per cent in the three months to August.

Furthermore, house prices were down 12.7 per cent year-on-year in August itself, which is a sharper drop than was seen in the early 1990's housing downturn.

Indeed, it was the sharpest drop since the series began in 1983.

The average price of a property in the UK now stands at £174,178, according to the Halifax.

"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," explained Martin Ellis, Halifax chief economist.

Coupled to a fall in average prices, Bank of England data also reveals the number of mortgages approved to finance house purchase fell by six per cent from a seasonally adjusted 35,000 in June to 33,000 July and was 71 per cent lower than in July 2007.

Higher food and fuel prices - which have increased by 12 per cent and 17 per cent respectively over the past year according to the Office for National Statistics (ONS) - have reduced the amount of discretionary income available to households, explains Halifax.

The pinch on incomes, together with the high level of average house prices in relation to earnings, has made it difficult for potential house purchasers to enter the market.

In addition, the decline in credit availability resulting from the crisis in the financial markets is a further constraint on buyers.

These factors are curbing housing demand, causing house prices and activity to fall.

"Major downward pressure on house prices continues to come from extremely weak market activity, stretched buyer affordability and tight lending conditions," commented Howard Archer, chief European economist for analyst Global Insight.

"Indeed, it seems odds-on that house prices will continue to head rapidly south given that the Bank of England reported record low mortgage approvals for house purchases in July, while latest surveys generally show that house sales are depressed, buyer interest remains weak, it is taking longer to sell a house, and sellers are achieving a falling percentage of their asking price."

However, in one chink of good news, Halifax also reports the house price to average earnings ratio – a key measure of housing affordability – has fallen from a peak of 5.84 in July 2007 to 5.13 in June 2008.

"We expect a further decline over the coming months as property prices continue to soften," concluded Mr Ellis.