“The problem is that lenders are not offering the deals they were, but if you take a five-year comparison house prices are way up.”

Howard Archer, chief economist for Global Insight, said: “We believe the downside will be limited by the rising number of households, an overall shortage of supply, high employment, further gradual but steady interest rate cuts and the fact that few vendors are currently having to sell for ‘distressed’ reasons.

“Nevertheless, the escalation of the credit crunch means there is an increased risk that a significantly sharper correction could occur.”

Many economists believe that the slowing down of the market could force the Bank of England to bring forward an interest rate cut to as soon as next month.

Nationwide’s chief economist, Fionnuala Earley, said: “The outlook for house prices is more downbeat than in our November forecast. Some of the risks we identified then have become a reality – most notably the continued turmoil in the financial markets.”

Yesterday the Nationwide was one of two major lenders to increase its mortgage rates.

Fixed-rate deals are up by 0.2 per cent while some tracker mortgages have increased by up to 0.57 per cent.

The Norwich & Peterborough Building Society, which is regularly featured in the mortgage best buy tables, also raised its fixed rates by between 0.20 to 0.25 per cent and its variable ones by up to 0.5 per cent. Analysts insisted that first-time buyers are the hardest hit by lenders toughening up their criteria and raising rates.

For example, they are being forced to put up larger deposits, with very few 100 per cent mortgages still being offered by lenders.

The British Bankers’ Association said the number of mortgages approved during February for people buying a house had fallen by a third compared with the same month of 2007.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: “This is making it even harder for first-time buyers.”

Nationwide’s Ms Earley added: “We expect a modest fall in house prices during the year, but such a fall should be seen in context.

“If prices were to fall in line with consumers’ expectations, they would still be higher than two years ago.

“A moderate fall in prices at this stage should not be unwelcome and should help to ensure greater stability in the market going forward.”