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House prices showed their biggest fall for four years last month, the latest sign that the property boom could be over.
Halifax reported that prices dropped 1.1 per cent in October. This knocked about £2,000 off the value of the average home and dragged the annual rate of house price inflation down to 18.5 per cent.
The country's largest mortgage lender said prices had now fallen by an average of 0.4 per cent in the past three months.
The Bank of England has raised interest rates five times since last November.
Martin Ellis, chief economist at the Halifax, said: "The interest rate hikes have taken impetus away from housing demand and first-time buyers continue to be held back." He expects prices to fall further.
The gloomy outlook for the property market helped to persuade the Bank's monetary policy committee to hold interest rates yesterday at
4.75 per cent.Ed Stansfield, at Capital Economics, said he believed "the speed of the slowdown" in house prices would "reinforce the growing belief that interest rates have peaked".
The latest figures back up several reports suggesting that the number of new mortgages approved by lenders slipped by up to 20 per cent between April and October.
There have also been reports that estate agents and removals companies have begun to cut back on staff.
Economists at Goldman Sachs now expect house prices to fall between 10 and 15 per cent in the next 18 months.
"Hard data are now bearing out what surveys and anecdotal evidence before that have been indicating for some months," said Ben Broadbent, an economist at the investment bank.
Other economists ruled out a housing market crash and said that prices were more likely to stagnate than slump.
There was some good news, with the Halifax saying that the "fundamentals" of the market remained sound. "Employment and household incomes, two very important drivers, continue to grow," said the bank, adding that the small number of available houses, especially in the South, "will also underpin the market".
The Halifax said that the property boom had resulted in "the value of housing assets exceeding the value of outstanding mortgage balances by £2,200 billion at the end of 2003.
"This represented a more-than-doubling in housing equity since 1998 and was well above the £900 billion at the end of 1989."
However, there are "tentative" signs that the ratio of house prices to earnings may have peaked.
Houses cost 5.57 times average earnings in August, compared with 5.63 times in July.
Meanwhile, the recent interest rate rises have increased mortgage payments to 19 per cent of the annual earnings of new borrowers in the past year, up from 14 per cent.
Nevertheless, in 1990, the figure was 34 per cent.
F P D Savills, the estate agent, said borrowers were taking out smaller mortgages, with the average loan to first-time buyers now representing 77 per cent of the value of the property.
"It is perhaps no surprise," said a spokesman for the estate agent, adding: "While many first-time buyers would probably like to take a 90 per cent or 95 per cent loan, they would simply be unable to service the monthly mortgage costs."
The monthly cost for someone paying off a 95 per cent loan on an averagely priced property on a six per cent mortgage is currently £1,050 a month and for London it is £1,600 a month.