Householders face a downturn in the housing market lasting two to three years after one of Britain's biggest mortgage lenders yesterday reported the first annual decline in property prices in more than 10 years.

With the supply of home loans drying up as a result of the credit crunch, the Nationwide building society said April's 1.1% drop in prices left the cost of a home 1% down on a year ago. Prices dropped for the sixth month in a row for the first time since the early 1990s housing market crash.

Fionnuala Earley, Nationwide's chief economist, said: "April was another difficult month for the housing market. The fall in prices reflects the weakening sentiment in the market brought about by poor affordability and tighter financial market conditions. This is the first year-on-year fall in prices since March 1996 and brings the price of a typical house to £178,555, £1,759 lower than at this time last year."

On Tuesday, David Blanchflower of the Bank of England's rate-setting monetary policy committee (MPC) said house prices could fall by a third over the next few years, with the UK repeating the recent experience of the US. City analysts said the Nationwide data marked the start of a long period of decline until the last possible date for the next election, particularly since lenders were taking a hard line with borrowers. A report yesterday showed that four out of 10 lenders had not passed on last month's cut in base rates.

Ed Stansfield, property economist for Capital Economics, said: "We have long warned that the housing market boom would end with a major correction. Since peaking last October, the Nationwide measure of house prices has fallen by a cumulative 4.2%. A quarter of the 20% decline that we are forecasting by end-2009 has already been delivered. There is no guarantee that prices won't fall further in 2010." Mike Hume, economist with Lehman Brothers, said: "MPC member David Blanchflower warned that a downward correction in house prices of up to one-third is plausible within the next few years. We continue to look for house prices to fall a cumulative 8% by the end of 2009, but the risk of a bigger drop has clearly increased."

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