The cost of a home slid by a further 1.8 per cent during the month to leave the average property costing £174,178 - 12.7 per cent less than in August last year.

Annual house price inflation, which measures the average cost of a home during the previous three months compared with the same period a year earlier, dropped to 10.9 per cent - a new record low for the index and the first time this measure has hit double digits.

The figures are in line with those reported by Nationwide Building Society last week, which showed that prices fell by 1.9 per cent during August, contributing to annual falls of 10.5 per cent.

Halifax said the latest fall meant house prices had returned to a level last seen in February 2006.

The average house price is also now below the Government's new stamp duty threshold of £175,000 according to both the Halifax and Nationwide indexes.

The Government announced a package of measures earlier this week to help struggling homeowners and those trying to get on to the property ladder, including increasing the level at which stamp duty kicks in from £125,000 to £175,000 for one year.

But the measures received a subdued welcome, with most commentators saying they would do little to boost activity in the housing market.

Instead, improving mortgage liquidity is seen as being crucial to improving activity levels, with transactions currently running at around half last year's figure.

The former head of Halifax Bank of Scotland, Sir James Crosby, is expected to publish his final report and proposals for the mortgage market by the end of this month.

But the Government is not due to outline what steps, if any, it will take in this area until the Pre-Budget Report in the autumn.

The property market has been hit by the double impact of stretched affordability and the mortgage drought, with many buyers sitting on their hands until the outlook for the market is clearer, while those who do want to go ahead with a move are struggling to raise the mortgage they need.

Homeowners are unlikely to receive a boost from the Bank of England later today, with the Monetary Policy Committee widely expected to keep interest rates on hold at five per cent.

Halifax chief economist, Martin Ellis, said: "The pressure on householders' income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.

"This week's announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south east of England. Market conditions, however, will remain challenging."

Halifax said only around 12 per cent of property sales in London were for below £175,000 during the past year, compared with 75 per cent in the North and 72 per cent in both the North West and Yorkshire and the Humber.