The Bank of England is under intense pressure to cut interest rates again tomorrow after house prices fell by the biggest margin since the early 1990s crash and ministers tried to prevent a spate of repossessions.

Gordon Brown insisted that the latest falls — 2.5 per cent, or nearly £5,000 for a typical property in March, according to the Halifax — were containable after the big gains of the past decade. The figures showed, however, that annual house price growth has slowed to its lowest level for 12 years. Property prices rose by only 1.1 per cent during the past 12 months, meaning that they are falling annually in real terms.

The falls were even more dramatic in some regions, such as the West Midlands, where they fell by an average of £9,000 during the first three months of the year, and Wales, where the average cost of a home has dropped by about £8,000.

Annual house price growth has turned negative in three regions, with prices now lower in Wales, the West Midlands and the South West than they were a year earlier.

Falling house prices could be a disaster for homebuyers who bought a property with little or no deposit in recent years. Homeowners who have been dipping into the equity in their home to fund their spending could also face difficulties as lenders are now insisting that borrowers have a substantial deposit or equity stake in their home.

About 1.4 million homeowners will come to the end of fixed-rate mortgage deals this year, and those who have less than 5 per cent equity are likely to have to pay their lenders’ expensive standard variable rate. These average about 7.5 per cent. This could add more than £200 a month to the monthly cost of a £150,000 mortgage deal.

The scale of concern within the Government, coming on top of all Mr Brown’s other woes, was underlined by the disclosure of government intervention on two fronts last night. Ministers are to meet mortgage lenders within days to assess the scale of negative equity problems caused by the price drop and to remind them of their duties to do all they can to help borrowers who may be getting into difficulties.

Yvette Cooper, the Treasury Chief Secretary, and Caroline Flint, the Housing Minister, will see the Council of Mortgage Lenders, urging it to extend loans if necessary to enable homeowners to make smaller monthly payments.

Alistair Darling, the Chancellor, will announce today that Sir James Crosby, the deputy chairman of the Financial Services Authority, will head the group announced in the Budget that will examine ways of easing conditions in the mortgage finance market that are leading banks and building societies to withdraw products from the market. They will be asked to provide the Treasury with a speedy assessment and options for action.

Yesterday’s house price fall was the second biggest since records began more than 25 years ago. Alarm over the health of the housing market, compounded by a slump in the number of homebuyers, forced the Bank of England to step in with a further £15 billion. The Bank said that it would increase the funds it was making available for mortgage lenders this month.

The strains on the housing market in Britain from the expiry of thousands of cheap, fixed-rate mortgage deals, as well as from the mortgage drought caused by the credit squeeze, were highlighted by the International Monetary Fund. Banks and building societies have been struggling to access funds since late last year, forcing many lenders to raise interest rates and tighten lending criteria. First-time buyers without a deposit are now in effect barred from home loans.

Experts doubted if the Bank’s move would be enough to ease the credit squeeze. Michael Coogan, director-general of the Council of Mortgage Lenders, said: “Having an extra few billion in one auction is not enough to address the market dysfunction.”

There was one crumb of comfort for homeowners wondering how to finance their mortgage when their fixed-rate term comes to an end. HSBC said that it would match existing fixed-rate deals, including rates as low as 4.54 per cent, for a further two years.

The housing slump emerged as consumer confidence slid to a new low. The Nationwide consumer confidence index dropped to 77 during March, the lowest level since it began in 2004. Only one in seven people thinks that the economic situation will improve within months. These gloomy figures ramped up the pressure on the Bank’s Monetary Policy Committee to vote for a rate cut as it starts its rate-setting deliberations today.

Richard Lambert, the Director-General of the CBI, said: “It seems clear that another reduction in rates is in the pipeline. The Bank should make a quarter-point cut now, rather than later, to help hard-pressed businesses and consumers.”

Mr Brown told the BBC that the 2.5 per cent fall in March should be seen in the context of ten years in which property prices had risen 180 per cent. He acknowledged that it was a difficult situation but said that Britain was better placed to cope than in previous slowdowns. “We have seen house prices rise by about 180 per cent over the last ten years and they have risen by about 18 per cent over the last three years, so a 2.5 per cent fall is something that is containable.”

George Osborne, the Shadow Chancellor, said that the house price figures meant that it was “the day that millions of homeowners are confronted with the consequences of Gordon Brown’s economic incompetence”.

Vince Cable, the Liberal Democrat Treasury spokesman, said that the falling market would be a welcome correction for first-time buyers struggling to get on the property ladder.