The Nationwide has reversed its prediction that there would be no overall change in house prices at the end of this year and forecast that prices will continue to fall.

The building society said prices fell by 0.6% in March, taking the annual increase to 1.1%, the lowest level since March 1996. The figure for the past three months revealed a fall of 1.5%.

"The outlook for UK house prices is clearly more downbeat than at the time of our November forecast," said Fionnuala Earley, chief economist at Nationwide.

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

Nationwide has announced increased to its fixed-rate and tracker mortgage deals to reflect higher inter-bank lending rates.