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The national year-on-year average decline was 12.8 per cent at the end of December, bringing the average price of a residential property in England and Wales down to £171,348.

This figure is also a 1.6 per cent drop from November last year, and brings prices back to levels which were last seen in February 2006, the Chesterton House Price Poll of Polls revealed.

December marked the sixteenth successive month of house price falls and recorded the largest year-on-year fall since the Poll of Polls began.

Prices fell in all UK regions in December, with the exception of Scotland, which experienced marginal growth.

All levels of the market have been affected, with the top 20 per cent falling by 12.8 per cent year-on-year, in line with the national average. The bottom 20 per cent has fallen hardest, by 13.8 per cent compared to December 2007.

Douglas McWilliams, chief executive of CEBR, said: "The latest Chesterton Poll of Polls shows that house price deflation continued through the end of the year. In December the value of a typical property was 12.8 per cent lower than in December 2007, compared with a 11.8 per cent annual fall in November.

"The house price fall in London has narrowed the gap between prices in the capital and prices elsewhere in the United Kingdom.

"Interest rates are now so low that the economy may not benefit from any further base rate cuts. To ensure that property prices stabilise, other measures may be necessary. We urge the government to act upon the recommendations set out in the Crosby Review and set up a mortgage loan guarantee scheme."

Robert Bartlett, chief executive officer of Chesterton Humberts, said: "While there was evidence of the traditional Christmas lull in December, with both transaction numbers and prices slipping, the number of viewings held was virtually equal to 2007 and the number of offers made exceeded last year's figures.

"The interest rate cut highlighted property's attraction to anyone with money in the bank. The abysmal savings rates on offer indicate that bricks and mortar could offer a better return over the long term than most other investments.

"However, it is essential for a property market recovery that the government uses the other economic tools available, including reducing stamp duty, and that banks open their doors again to borrowers.

"First time buyers with sufficient deposits and upsizers with equity in their current homes could secure the homes they desperately desire if lending institutions would open the vaults."