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House prices have fallen by a record 13.3 per cent in the last year, an influential index reported on Thursday.

The yearly figure represents the largest-ever annual drop recorded by Halifax – the UK's biggest mortgage provider - well ahead of precedents established during the early 1990s housing slump.

Today's year-on-year drop in the 12 months to September was the sharpest decline since the series began in 1983.

Falls were compounded by a 1.3 per cent month-on-month in September alone. However, this was the smallest drop since February, suggesting the market may be reaching its nadir.

In addition, house prices nationally declined by 5.2 per cent in the third quarter of the year. This was almost identical to the 5.1 per cent fall in the second quarter, indicating that the trend rate of decline may be beginning to stabilise.

As a result of the latest falls the average price for a property in the UK has returned to levels last recorded in January 2006, around £170,866.

While price falls may be stabilising, new research from the Royal Institution of Chartered Surveyors (Rics) shows completed property sales were 47 per cent lower in August this year than in August 2007.

Newly agreed sales – those not yet completed – also continued to fall, but the pace of decline stabilised.

In some welcome good news for the market, however, mortgage prices appear to be falling.

Halifax reports, the average mortgage rate paid by all borrowers - the average rate on outstanding mortgage loans - fell slightly from 5.91 per cent in August 2007 to 5.83 per cent in August 2008.

While yesterday's surprise 0.5 per cent cut in the Bank of England's base rate of interest will further help borrowers faced with increasing pressures on their finances, lenders are unlikely to pass on the full cut to homeowners.

Commenting on the latest figures Howard Archer, chief European economist with analysts Global Insight, said: "House prices seem poised to fall substantially further as the fundamentals remain largely negative even though tracker mortgage rates have fallen following the Bank of England's 50 basis point interest rate cut.

"Credit conditions remain extremely tight and this continues to exert upward pressure on many mortgage rates and limit the amount of mortgages available."