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House prices fell 3.1% year-on-year in March, the biggest drop since July 2009, according to Nationwide.
This compares to a 1.1% year-on-year drop in February.
On a monthly basis, home prices fell 0.8% in March after falling 0.5% a month earlier.
Nationwide reports that the average UK home price is now £257,122.
In the first quarter of this year, the building society adds, home prices fell in nine of the 13 regions it measures, with all regions at least seeing slower growth.
The worst performers were in Scotland, where house prices fell 3.1% year-on-year, while the West Midlands rose 1.4%, making it the best-performing region.
In the West Midlands, growth was 6.1% in the first quarter of 2022.
Nationwide Chief Economist Robert Gardner said: “The housing market reached a turning point last year as a result of the financial market turmoil that followed the mini-budget. Since then, activity has remained subdued.
“It will be difficult for the market to regain significant momentum in the near term as consumer confidence remains weak and household budgets remain under pressure from high inflation. Housing affordability also remains limited as mortgage rates remain well above the lows that existed at the time last year.”
Real Estate Guild Executive Director Ian McKenzie says: “With the biggest annual drop in home prices since the financial crisis, homeowners may be worried about what this means for them.
“Unlike the financial crisis, we did not see a sharp drop in transactions, so the slowdown in prices can hardly be called an expected collapse.
“Sellers are becoming more open to negotiating with buyers at the asking price, and that can skew the data.”
McKenzie continues: “While we are forecasting an overall decline of around 8% this year, this will only bring house prices back to 2021 levels.
“Confidence in the real estate market is returning after the mini-budget failure last September, and we should expect further improvements if inflation is brought under control this year.”
However, Hargreaves Lansdown personal finance expert Sarah Coles comments: “Buyers have been crushed by runaway inflation, inflated mortgage rates, a sluggish economy and the threat that things could get worse.
“Rics data for February showed that consumer demand fell again for the tenth month in a row. Buyers’ enthusiasm was probably further undermined by the fact that the gradual fall in mortgage rates ended in March.
“At the end of February, according to Moneyfacts, the average two-year trading was 5.32%, and by March 30, it had risen very slightly to 5.38%.
“As a result, sellers have to compromise to change their property. Ricks says 60% of homes under £500,000 are selling for less than asking price, and Zoopla found that 40% of home sellers cut prices before a seller even shows up, by an average of 4.5%.
She continues: “There is a glimmer of hope in the mortgage market. The rate hike is likely to be a temporary blip as inflation turns out to be higher than expected. As we get closer to the end of the year, we expect inflation to drop significantly, so we may well see rate cuts again.
“Already in February there was a very slight increase in the number of approved mortgages for the coming months. However, this is still less than half of the numbers we saw two years ago, so you need to look very closely to see any real hope in these numbers.
These figures are easy to interpret as the beginning of a slippery slope, where prices start to gradually fall and then accelerate. We cannot yet rule out the possibility of a gradual southward drift and a softer landing, but this looks increasingly unlikely.”
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