UK house prices are falling at their fastest rate for almost three years, according to the latest house price index from Nationwide.
The average UK house price fell by £1,350 in July, the biggest monthly fall since December 2011.
The data shows that the average house price fell by 0.7 per cent in July, the fourth fall in five months, taking the annualised drop to 2.6 per cent.
This means the average UK home is £164,389, compared to June’s figure of £165,738.
Average house prices remain slightly higher than they were at the start of the month. This puts them at the same level they were at in May 2006 and 13 per cent down on their 2007 peak.
Nationwide confirmed that the earnings to house price ratio is still above its long-term average.
The index also showed that prices in London and the south-east continue to rise and that the overall fall is being influenced by sharper falls in the rest of the country.
The data follows on from Monday’s Bank of England mortgage approvals data that revealed new mortgage approvals are at their lowest level since 2010 and well below levels that indicate a normal property market.
The two sets of data suggest that the property market is heading for a new downturn.
Robert Gardner, Nationwide's Chief Economist, said: “The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy.
"Against this difficult economic backdrop, it could be argued that UK house prices have shown resilience. While prices are currently 13% below their 2007 peak, this is less than the declines seen in a number of other economies that have experienced similar or more robust economic recoveries."
Nationwide put the decline down to the impact of the double-dip recession and said that the strength of the UK labour market had helped to support house prices in the UK.
“However, this pattern of negative economic growth and steady employment growth cannot be sustained indefinitely,” said the report from Nationwide.
The report contrasted the relative strength of the UK property market compared to other economies that had emerged from recession stronger than the UK but still seen bigger drops in property values, such as the USA and the Netherlands.
Commenting on the Bank of England’s funding for lending scheme which starts today, Nationwide said that: “The extent to which the scheme is successful in boosting lending will depend crucially on the demand for credit.”
Ashley Alexander, managing director, at MeetMyAgent.co.uk, agreed, saying: The hope is that the Funding for Lending scheme, and the end of the Olympics, will see a surge in activity in the Autumn and inject some much-needed momentum into the market.
"There are already signs of an improvement in mortgage rates, but we'll have to wait and see whether this will extend to higher LTVs.
"Even if there is a greater availability of credit, the question is whether there is the demand for this credit. Consumers remain very cautious."
Howard Archer, Chief UK & European Economist at IHS Global Insight commented: “The soft news on the housing market is coming pretty thick and fast at the moment.
“The Nationwide data reinforce our belief that house prices are headed lower over the rest of 2012 and very possibly beyond in the face of limited activity, low and fragile consumer confidence, muted earnings growth and relatively high unemployment.
“We expect house prices to end up losing at least 3% from current levels,” added Mr Archer.
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