Forget slashing the asking price, offer a free car instead. This is the approach that a developer in Newquay is hoping will help him to beat the sales slump as he tries to sell 65 flats.

Another developer is simply threatening to sue buyers who pull out of purchasing luxury flats in a £25 million development in Plymouth.

The increasingly desperate measures being employed by housebuilders to sell their properties reflect the dire state of the housing market.

Barratt Developments became the latest to announce job losses, saying yesterday that it was cutting 1,200 posts, a fifth of its workforce. Other leading homebuilders, including Taylor Wimpey and Redrow, have already said that they are slashing thousands of positions. Mark Clare, chief executive of Barratt, gave warning that job cuts across the industry could reach 60,000 out of 300,000.

The troubles were highlighted further by new figures showing that house prices are falling at the fastest rate for a quarter of a century, fuelling fears that the ailing market is tipping Britain into recession.

House prices dropped by 2 per cent in June, wiping more than £4,000 off the value of an average home, figures from Halifax, Britain’s biggest mortgage lender, suggest. This pushed the annual rate of price falls to 6.1 per cent, the largest decline since 1983, when Halifax’s records began.

The value of a typical home has fallen by nearly 10 per cent, or about £20,000, since prices peaked in August last year, raising the prospect of negative equity for thousands of homeowners who bought their property with little or no deposit.

Economists gave warning that there was worse to come. Yesterday Howard Archer, of Global Insight, the economic consultancy, changed his forecast for house price falls this year to 15 per cent, up from 12 per cent, with a further 12 per cent fall next year. Michael Saunders, of Citigroup, the investment bank, said: “It is fair to say that we are now in the worst housing slide for more than 50 years.”

The Bank of England decided against trying to boost homeowner morale with an interest rate cut yesterday. Concerns over inflation, which is set to rise to double the Bank’s 2 per cent target by the end of the year, prompted the Monetary Policy Committee to keep rates on hold at 5 per cent.

House prices are being dragged down because many first-time buyers are unable to get a mortgage deal. Banks and building societies are demanding ever heftier deposits from borrowers in an attempt to protect their profits after the credit crunch, making it impossible for all but the most cash-rich buyers to secure a home loan. Sellers are being forced to cut their asking prices aggressively to attract interest from a dwindling number of buyers.

Estate agents also claim that the frequent increases in mortgage rates, which have risen to eight-year highs despite recent falls in the base rate, are causing thousands of house sales to fall through as people in chains find that their mortgage deal is no longer valid.

There were hopes that the Bank of England’s multibillion-pound injection of cash into the credit markets earlier this year would revive the mortgage market, but it has had little effect. As a result, interest in an emergency review of the mortgage market by the former chief of HBOS, Sir James Crosby, given the task of kick-starting it by the Government, is reaching fever pitch. Sir James is due to deliver his preliminary findings before the end of the month.

Bradley’s, the estate agent selling the flats in Newquay that range in price from £249,999 to £1.5 million, said that the free cars were being offered in an attempt to invigorate the stalling market. Those who buy one of the cheaper flats on August 1 will drive away a free Smart Car worth £9,000; those buying more expensive properties will be given a Mercedes or Range Rover, worth £50,000 and £55,000 respectively. Trisha Daley, of Bradley’s, said that the scheme offered “a second car for a second home”. One financial expert, however, described the offer as “a desperate move”.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, said: “Buyers would be better to wait before purchasing a property until the market is down by 25 per cent — they could probably afford to buy a fleet of cars with the savings they make.”

Work on Europe’s tallest residential block, the Lumiere in Leeds, has been halted. Kevin Linfoot, the property developer in charge of the project, said that it would be “commercial suicide” to continue in the current economic conditions. Bovis Homes has also downed tools, saying it will complete current developments but will not start any new ones.

As housebuilders decrease their workloads dramatically, experts say that it is now unlikely that the Government will meet its target of building three million homes by 2020, at a rate of 240,000 a year in England.

The number of homes being started has dropped sharply so far this year by about 16 per cent, and economists say that the number being completed could fall to 135,000 this year, down from 153,000 last year.

Peter Bolton King, of the National Association of Estate Agents, said: “The Housing Minister’s housebuilding targets have gone out the window. They were always going to be challenging but now they are nearly impossible.”

The speed at which house prices are tumbling is raising anxieties that the property crash could tip the economy into recession as hard-pressed homeowners, battling with higher costs of food, energy and mortgages, cut their spending.