Falling sales of homes are forcing owners to slash up to 30% off the value of their house.
Property websites targeting foreign buyers are seeing some of the largest drops in prices.
The low value of sterling means Britons selling-up are more inclined to accept lower offers because of the favourable exchange rate when bringing the proceeds back to the UK.
The rise of the euro was also straining some owners with incomes in sterling who had planned on carrying out renovations.
British estate agent in the Dordogne Gil Kendall, said that overall market conditions for second homes had reversed "quite dramatically".
Mrs Kendall, who has specialised in second homes for foreigners for 20 years, said "the number of sales in our part of the world has fallen dramatically."
The percentage of foreign buyers was "greatly reduced," she added. The four agencies she managed did 50% of their sales with British nationals, 25% with Dutch and 25% with French.
"In the last two years prices have not risen overall and are starting to fall from the level two years ago. This explains why deals are being done at 20-30 percent below the asking price," she explained.
A search of properties on the internet targeted at foreign buyers supported this view: several advertisements announced price cuts of 20%.
"I wouldn't be surprised if it's another three to four years before things line up again," Mrs Kendall said.
"People thought prices could only go up," she added. "Property was cheaper than at home. Suddenly the situation has changed quite dramatically.”
Sales made in euros convert strongly into pounds if the proceeds are taken back to Britain – adding to the willingness for homeowners to drop their prices in order to sell up.
The pound has fallen by 14.7% against the euro in the last 12 months.
Mrs Kendall said the second homes market depended on a feel-good factor and added that the rising prices of flights was also having an affect.
Exposed
Estate agent Charles Gillooley, president of the FNAIM in the Dordogne and vice-president for the Aquitaine region, explained that many British owners had bought with British mortgages against increased valuations of their main homes in Britain.
This left them potentially exposed to any deterioration of their financial position in Britain, as well as to international factors now affecting the property market.
Those who bought with a view to renovation found that the costs and skills needed exceeded their capacities could face difficulties, particularly if a house is half-renovated or badly located, because potential buyers were people like them.
Overall, "asking prices (in the second home market) are coming down, by up to say 20 percent, but taking prices are not much down on what they were. A lot of people are being more realistic in what they ask."
At Paris X-Nanterre University, economist and property specialist Michel Mouillart said: "2008 is likely to be the first year of recession in property after several years of expansion."
Sales of new homes fell nearly 28% in the first quarter to 26,700 units and if that pace continued, he said it would amount to "a shock similar to the crisis at the beginning of the 1990s."
A spokesman for national statistics office Insee said: "France, too, is now experiencing a real-estate market downturn.
"Household residential investment, still growing last year, should fall significantly in 2008, as heralded by the drop in housing starts since the beginning of the year."
Insee said that the fall was due to a number of factors including the high price of oil and food which was eroding purchasing power.
French construction group Kaufman and Broad which builds middle-class estates, revealed a 71% slump in profits in the first six months of 2008.
Its shares fell 30% over a month and 54% over the last year.
The company recently offered 250 homes for sale over the internet at discounts of 5-7% but has only sold 60 of them.
Company chairman Guy Nafilyan said that "the sharp slowing of the housing market in France" had been "more marked than anticipated in the second quarter" and forecast a full-year fall of sales of 5.0 percent from the 2007 figure.
The company said that the results had fallen "essentially from a change in the attitude of banks making loans, to the rise of interest rates and a more marked inclination of buyers in the second quarter to wait."
Predictions
Predictions for the coming year vary.
The head of online mortgage broker Meilleurtaux, Christophe Cremer, said prices would fall by 5-6% this year and by 3-4% in 2009.
However a director at savings bank Caisse d'Epargne, Guy Cotret, has forecast that "the fall in prices is likely to be only 2-3% in 2008."
The director general of agency chain Century 21, Herve Blery, said: "The national trend should be for stable prices throughout 2008."
He added there would be big variations from a 5% rise in central Paris to falls in medium-sized towns.
Data from the FNAIM federation of estate agencies shows prices of homes, other than new properties, fell by 1.3% in May after a rise of 0.4% in April.
Photo: flckr Rhian vK
