The fall in house prices during the past year has been confirmed by the government’s own house price index. Published by the Communities and Local Government department (DCLG), it shows that prices in July were 0.3% lower than a year ago.

That was despite a surprise 1% rise in prices during the course of July.

House prices have fallen in the past year, by about 11% some leading lenders say, because the credit crunch has choked the supply of mortgage funds.

The current issue affecting the market is largely about the supply of credit, a very different situation to the early 1990s which was about high interest rates and unemployment, said a DCLG spokesman.

The DCLG survey, based on completed sales, shows that prices have now dropped for the ninth month in a row, which has taken the average UK property price down to £217,171.

However the picture is not uniform across the country. Prices are down by 0.3% in England, 0.8% in Wales and 10.3% in Northern Ireland. But in Scotland prices have risen by 3.6% over the past year.

Surveys from lenders such as the Halifax and the Nationwide have suggested that the fall in prices, in the year to August, has been much steeper than that recorded by the DCLG. That may be due to different methodologies used in their surveys.

The lenders base their figures on prices quoted when they approve their mortgage loans. Whereas the DCLG’s survey is calculated by using completions, based on a survey of about 50,000 sales from 60 mortgage providers, a month behind the lenders.

Economists said that because of this lag, the government’s own figures may get worse.

After the chaos in the global financial markets over the past week, borrowers have been urged to snap up attractive mortgage deals while they last.

The sudden collapse of Lehman Brothers, the fire-sale of Merrill Lynch, the bailout of AIG by the Federal Reserve and the prospect of an emergency takeover of the UK lender HBOS have all raised fears that home loans will again dry up and the cost of those available will rocket.

The average cost of a two-year fixed-rate mortgage deal has been in decline for two months, dropping from 7.08 per cent in July to 6.39 per cent this month. The US Government-backed rescue of the mortgage giants Fannie Mae and Freddie Mac less than a fortnight ago added to confidence that an easing of the credit crunch was under way.

But the shock disintegration of Lehman, the US investment bank, and talks of an emergency takeover of HBOS by Lloyds TSB in particular, will worsen the mortgage drought in the UK as local lenders wait to see the extent of their losses.

Confidence in the financial markets has once again been shaken and if this continues, with more banking names dragged into it, this will discourage lenders from lending to one another, pushing up the cost of borrowing in the money markets. This could then lead to higher mortgage rates.

However, it can take up to two weeks for the higher cost of bank borrowing to filter through to customers. The delay in the fallout reaching the mortgage markets comes from UK lenders waiting to see if the “initial reaction to the news was the right one”.

The time is right, therefore, for borrowers to take advantage of the banks indecision about the markets direction to snap up a bargain before the cost of borrowing rises sharply again.