House prices plunged by 16.2% during 2008 in the biggest drop for a calendar year on record, Halifax said.
Last year's price plummet, which came after the average value of a property in the UK fell 2.2% in December, was the biggest year-on-year fall since the Halifax began recording data in 1983.
Britain's biggest mortgage lender said the typical price of a property now stands at £159,896 - back to August 2004 levels.
The drop in annual house price inflation measures prices in the previous three months compared with the same period a year ago.
But if house prices in December are compared with prices in December 2007, the fall is even more dramatic at 18.9%.
And Halifax warned that the property market will come under further pressure in 2009 as the financial crisis continues to restrict lending in the UK.
Meanwhile, the number of mortgages approved for house purchase slumped to a new record low during November, figures showed.
Just 27,000 loans were arranged for people buying a new property during the month, only a third of the number arranged in November 2007, according to the Bank of England.
The figure was also 13% lower than in October, ending a four-month period during which mortgage approvals for house purchase had remained broadly stable at around 32,000.
The number of new loans approved was below economists' expectations, and suggested that November's surprise 1.5% reduction in interest rates had failed to have an immediate impact on housing market activity.
