Almost £7,000 has been wiped off the value of the average British home since October, after house prices dropped for a fifth consecutive month, according to latest survey figures.

Britain's average house price fell by a further 0.6 per cent, or just over £1,000, in March, on the heels of a 0.5 per cent decline in February, the Nationwide Building Society's most recent snapshot of market conditions shows.

The prolonged slide in prices since last autumn has now seen them fall by almost 3 per cent in six months and has cut the annual pace of house price inflation to a 12-year low of 1.1 per cent.

The latest news for anxious homeowners sparked warnings from economists that, with market activity being sapped by higher mortgage rates that are still rising despite cuts in official base rates, the property downturn is set to deepen in coming months.

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Nationwide's economists yesterday abandoned their past insistence that residential property values would at worst be flat this year and gave warning that prices would continue to slide.

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

However, Ms Earley said that the modest decline in prices needed to be seen in context and its impact should not be exaggerated. “A moderate fall in house prices at this stage should not be unwelcome and should help to ensure stability in the market,” she said. Other economists also pointed to continued increases in mortgage rates, triggered by the deepening credit crunch, as a big risk factor for the housing market, particularly at a time when tens of thousands of people face the expiry of cheap fixed-rate deals.

On Thursday, three of Britain's biggest mortgage lenders raised some of their home loan rates in response to tighter lending conditions stemming from the credit squeeze.

Resurgent stress in the wholesale money markets on which lenders rely to raise the funds for mortgage borrowers was raised as the three-month Libor rate for lending between institutions climbed this week to its highest this year, at levels of about 6 per cent - far above the Bank of England 5.25 per cent base rate.

Howard Archer, of Global Insight, said: “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.”

Mounting pressure on the housing market was confirmed this week by the latest mortgage approvals' figures from lenders, which are seen as a good indicator of future trends.

The number of mortgages approved in February for house purchases, as opposed to remortgaging, remain weak at 43,780. This is similar to January's subdued number and down by a third compared with levels at the same time last year.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said that the weak conditions were getting worse as rising loan costs pushed more first-time buyers out of the market.

“This is making it even harder for first-time buyers to take their first step on the property market,” he said. “There is little reason to believe that underlying problems facing mortgage lenders will ease anytime soon. As a result, house prices are likely to continue to drift lower in the coming months.”