House prices fell for the fifth month in a row during March as the market continued its downward trend, figures showed today.

The average cost of a home in the UK dropped by 0.6% during the month to stand at £179,110, according to Nationwide Building Society.

At the same time, annual house price growth also continued to ease, slowing to just 1.1%, its lowest level since March 1996, and less than half the year-on-year gain of 2.7% recorded during February.

The average home now costs just £2,027 more than it did in March last year, with prices falling by 2.9% during the past five months.

Fionnuala Earley, Nationwide's chief economist, said: "A clear change in sentiment since the late summer has led to the sharp slowing in house price growth, even in the less volatile three-month on three-month series.

"Prices on this measure are now 1.5% lower than three months ago. The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year."

But she added that prices were still 11% higher than they had been two years ago and 47% higher than they were five years ago.

The group said deteriorating affordability, higher interest rates and slow earnings growth were already beginning to affect house prices in early 2007, although this was not reflected in consumers' expectations for property price growth.

But since September, people's expectations have been falling sharply, coinciding with the turmoil in the financial markets and the problems at Northern Rock, as well as a slowdown in annual house price inflation.

Nationwide said lower consumer expectations would cause at least some of the demand in the housing market to fall away.

Ms Earley said: "Once a general trend in expectation has been formed its effect is likely to be highly influential on both transactions and price levels.

"This happens, first by removing the urgency to move and second by giving buyers a bigger incentive to drive a harder bargain in order to hedge against any possible falls in prices."

The group said it expected a "modest fall" in house prices across the whole of 2008, adding that such a fall would ensure greater stability in the market going forward.

The Nationwide figures come the day after data from the British Bankers' Association showed that the number of mortgages approved for people moving house in February had fallen by a third compared with the same month of 2007.

The Nationwide news unsettled Charles Church owner Persimmon, which topped the FTSE 100 Index fallers by late morningb with a drop of 6% or 48.5p to 741p.

Stronger mining and oil firms ensured the Footsie achieved positive territory overall, with the top flight index ahead 5.1 points at 5722.6 by mid-morning.

Enterprise Inns led the risers after tax and legal advice indicated it should be in a position to covert to tax-efficient REIT status, boosting potential returns to shareholders. With trading also in line with expectations, Enterprise shares rose 10%, or 36.5p to 400.5p.

Elsewhere in the pubs sector, Punch Taverns lifted 4% - or 20p at 538.5p - amid relief over its decision not to pursue a potential merger with rival Mitchells & Butlers. The All Bar One owner recovered from a weak start to stand 3p higher at 332.5p.

Other notable moves during the session included British Airways, as investors started to fret about the level of cancellations being caused by a second day of problems at Terminal 5. Shares were off 3% or 7.75p at 239.5p.

As well as the falls for housebuilders, sentiment towards retailers was weak after the release of poor consumer confidence figures. Marks & Spencer dipped 3% or 11.25p to 397.5p, while Next was off 27p at 1171p and B&Q owner Kingfisher eased 2.9p to 127.5p.

In the FTSE 250 Index, Barratt Developments slipped 7% after broker Panmure Gordon added to pain in the sector by issuing a sell note on the stock, which fell 30.75p to 407.25p. Newcastle-based Bellway eased 38p to 847p and Redrow dipped 10p to 304.5p - offsetting gains seen yesterday.