Britain's biggest mortgage lender said the drop was the largest since September 1992.

House prices are now just 1.1% higher than they were a year ago, the slowest rate of annual growth for 12 years.

Martin Ellis, Halifax chief economist, said: 'This fall is continuing the pattern whereby the market is readjusting. Sellers are having to adjust the price they ask for their properties.'

He said the group still expected there to be only a 'modest fall' in house prices for the whole of 2008 saying the most recent drops needed to be seen in the context of house price gains of the 51% during the past five years and rises of 171% during the past 10 years.

The group said homes had lost 1% of their value during the first quarter of 2008, to leave the average property costing £191,556.

But there has been huge regional variation within this figure, with house prices in the West Midlands falling by 5% during the first three months of the year, while property prices have dropped by 4.7% in Wales and by 2.6% in the South West.

There were also price falls of 1.5% in Northern Ireland and drops of 0.5% in both Yorkshire and the Humber and the North West. But at the other end of the scale house prices rose by 2.2% in the East Midlands, 1.6% in Greater London and by 1.4% in East Anglia.

House prices are now lower in three regions of the country than they were a year ago, with the average home costing 5.3% less in Wales, 3.7% less in the West Midlands and 3.3% less in the South West.