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The Bank of England is under pressure to cut interest rates following the biggest fall in house prices for 16 years.

Figures from the Halifax showed that UK house prices fell by 2.5% in March - a devaluation of almost 拢5,000 for a typical property.

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The fall in prices means that homeowners who bought property with a small deposit in recent years, or those who have withdrawn large amounts of equity from their homes, could face difficulties, as lenders are insisting that borrowers have a substantial equity stake in their homes.

Homeowners with less than 5% equity are likely to be forced onto lenders' expensive standard variable rates, which average about 7.5%, when their fixed-rate mortgage deals expire. This could add 拢200 to the monthly cost of a 拢150,000 mortgage.

Ministers are expected to meet mortgage lenders within days to assess the likely scale of negative equity problems resulting from the falling prices and to remind them of their duty to help borrowers who may be getting into difficulties.

Yvette Cooper, the Treasury chief secretary, and housing minister Caroline Flint will urge the Council of Mortgage Lenders to extend loans if necessary to enable homeowners to make smaller monthly payments.

Gordon Brown has insisted, however, that the recent decline in house prices is containable after the big gains of the past decade.

鈥淲e have seen house prices rise by about 180% over the last 10 years and they have risen by about 18% over the last three years, so a 2.5% fall is something that is containable,鈥� he told the BBC.

But with annual house price growth at its slowest for 12 years, the rise of just 1.1% over the past 12 months equates to a fall in real terms, and prices in Wales, the West Midlands and the South West have actually dropped in the past year.

The government will announce today that Sir James Crosby, deputy chairman of the Financial Services Authority, is to head the group looking into ways of easing the market conditions that have led to a rush of mortgage product withdrawals.

The Bank of England has increased the funds available to mortgage lenders to ease the pressure on them. Banks and building societies have been struggling to access funds since the credit crunch bit late last year, forcing lenders to raise rates and tighten lending criteria.

However, experts doubted the move would be enough to ease the credit squeeze. Michael Coogan, director-general of the Council of Mortgage Lenders, told The Times: 鈥淗aving an extra few billion in one auction is not enough to address the market dysfunction.鈥�