House prices fell this month at the fastest rate since July 2005 as the number of new buyers declined more swiftly even than the faltering supply of homes for sale.

Hometrack, the property data company, said that prices fell by 0.2 per cent in November, dropping for the second month in a row after a decline of 0.1 per cent in October. The annual house price growth rate for the UK is only 3.6 per cent – its lowest since July last year and down from 6.4 per cent as recently as this June, when prices were said to be rising in almost 30 per cent of British postcodes.

Prices are dropping in one in five postal districts, with the pain concentrated in areas such as Avon, Buckinghamshire and Leicestershire. The worst-performing region is the East Midlands – down by 0.3 per cent in a month – but falls of as much as 0.5 per cent have been recorded in Central London.

Richard Donnell, the director of research at Hometrack, said: “Media focus on the fallout from the credit squeeze, along with relatively high interest rates, is resulting in widespread caution among homeowners, the majority of whom do not need to move and who are sitting back until the outlook becomes clearer.”

The reluctance of buyers to commit – or their inability to secure funds from anxious lenders – shows increasing signs of choking the market. Hometrack reports that a property is lingering on the market for eight weeks on average, up from 6.9 weeks a month ago, and that properties are selling for an average 93.8 per cent of the asking price, down from 94.8 per cent.

The British Bankers’ Association (BBA) revealed on Friday that new mortgage approvals had dropped to 44,105 in October, the lowest since its records began a decade ago. The BBA said that the total value of mortgages granted was £15.1 billion last month, down by 25.4 per cent in a year.

The potential extent of the global credit crunch remains uncertain, and Mr Donnell said: “While the economic fundamentals remain strong, it is hard to see the catalyst for any short-term turnaround in market confidence other than interest rate cuts early in the new year.”

The Hometrack figures for November show that the number of new buyers is down by 9.1 per cent in a month, with homes coming to market down by 2.9 per cent. Mr Donnell said: “The Christmas slowdown looks to have started early, but the underlying market conditions remain weak, with new-buyer registrations down by 26 per cent per cent over the last five months.”