The average house price in England and Wales dropped to £159,999 to £161,461 the previous month, and economists warned that the future direction for prices would continue this downward trend.
Average house prices for the UK peaked at £166,568 in August 2010.
Howard Archer, chief UK economist for Global Insight, said that he expects house prices to fall by 5pc from current levels by mid 2012.
"We suspect that consumers' squeezed purchasing power, a markedly weakening labour market and major concerns over the economic outlook will limit potential buyers and weigh down on house prices," he said.
"On top of that, there still seem to be significant difficulties in getting a mortgage for many people, notably including the need to raise high deposits (particularly for first time buyers).
And there is significant concern that banks' future ability to lend to home buyers could be hit by difficult wholesale funding conditions."
Lucy Pendleton, from London estate agent James Pendleton, warned that London may not be immune from further falls. "With this latest house price data, Londoners have had a major reality check.
The capital is not immune to the collapse in business and consumer confidence - and the unravelling of the eurozone.
"Unlike other areas, specifically the North and Wales, London is at least in positive territory on an annual basis.
But the market has caught up with it. The UK property market, like so many other markets, is looking to Europe and what it sees isn't pretty."
telegraph.co.uk
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