House prices have suffered their biggest drop on record, with more than £6,000 wiped of the value of the average property last month.
The price of a typical house dropped from £168,124 in August to £162,092, according to Britain’s biggest mortgage lender Halifax.
The decline wil bring more home owners closer to falling into negative equity, where their mortgage is greater than the value of their home.
Without the equity in their homes needed to remortgage, they will be unable to move, leading to a sharp increase in what the Council of Mortgage Lenders recently defined “mortgage prisoners”.
Sue Anderson, a spokesman at the CML, said: "The future direction of house prices remains uncertain. But house price falls exacerbate the problem that people with lower levels of equity face if they wish to move or remortgage."
David Hollingworth, of mortgage broker London & Country, said: “It embodies the fears in the market that prices would start to drop again and will booster talk of a double dip in the housing market.”
And Paul Diggle, property economist at Capital Economics, said: “The hefty drop in the Halifax measure of house prices adds weight to the view that house price weakness is far from over. To our minds, weak housing market activity indicators mean that further falls in house prices are likely.”
“There is no doubt that this will reduce the amount of equity in people’s homes, making it even harder to remortgage.”
It comes after the Bank of England warned that obtaining a mortgage is about to become even more difficult. Lenders are imposing tougher rules amid fears that higher unemployment will result in more home owners defaulting on loans.
An increase in the supply of property and a drop in demand fuelled by uncertainty about the economy pushed prices down 3.6 per cent, the biggest monthly fall since figures were first compiled in 1983.