The Halifax’s figures show a monthly drop of 3.6% and a quarterly drop of 0.9%, resulting in an annual change of 2.6%.
Commenting, Halifax economist Martin Ellis, said: "Looking at quarterly figures - a better measure of the underlying trend - house prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010.
“This rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is therefore far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices.
"A shortage of properties for sale contributed to an imbalance between supply and demand and was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase.
“Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month on month measure has increased due to the low transaction levels across the market; this underlines the difficulty of getting a clear reading on the current state of the housing market.
"Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices.
“On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners."
Tim Hammond, CEO, property search specialists The Buying Agents, believes September figures could prove to be a window of opportunity for homebuyers. He said: "Although these figures will send shock waves through the industry, there will be a lot of buyers out there who will see this as the window of opportunity they have been waiting for.
“For some time there has been a stand-off between sellers and buyers, with vendors reluctant to drop their prices and properties languishing on the market for months at unrealistic prices. Now at last, it seems we're starting to see the 'vendor freeze-up' thawing as those sellers in a position to discount their properties are making the decision to do so.
"There is still likely to be a great deal of caution amongst buyers, with many undoubtedly worried that this could be the start of a significant property price correction, but for those buyers who are looking at a longer term purchase and have a cushion to absorb further prices falls, now definitely represents a fantastic buying opportunity."
David Smith, the senior partner at property consultancy, Carter Jonas, agrees with Martin Ellis that the quarterly data is what is important. He said: "We have offices all over the country and have seen nothing to suggest that prices fell by 3.6% during September.
"The sensational September statistic will cause significant concern but it is not consistent with what is happening in the real market. The quarterly rate of change, at -0.9%, is a far more accurate reflection of market conditions.
"Demand, of course, has been weakened by uncertainty around employment security, the economy and the imminent Spending Review but it has by no means disappeared.
"For the right properties in the right areas at the right prices, especially at the high end, the market is still very fluid and as long as interest rates remain as low as they are, there will continue to be a market.
"The concern is that statistics like this will further dent consumer confidence.
"Martin Ellis hits the nail on the head when he talks of the difficulty of securing a clear reading. With so many negative and positive variables in the mix at present, it is almost impossible to predict activity within the property market from one month to the next."
