Nationwide: Annual property prices fall 1%

Average annual property prices have fallen for the first time in 12 years, according to the latest Nationwide survey.

Prices fell 1.1 per cent in April, the sixth consecutive monthly fall, and dragged annual growth into the red – with prices down one per cent since April 2007.

This is the second survey to find prices falling year-on-year, following research from Hometrack released earlier this week.

According to Nationwide, the average property in the UK now costs £178,555, down from £179,110 in March.

"April’s fall in prices continues the trend of the last six months and reflects the weakening sentiment in the market brought about by poor affordability and tighter financial market conditions," explained Fionnuala Earley, Nationwide's chief economist.

"The latest fall in house prices follows from the steep decline in house purchase transactions over the last half year.

"As a result of falling demand from first-time buyers, higher mortgage rates and tighter lending criteria, the number of mortgages approved for house purchases has fallen to record lows."

The tightening of lending criteria is also cited by the Royal Institution of Chartered Surveyors (Rics) as a key factor behind the fall in prices.

"The scaling back of loan to value ratio by lenders is depressing turnover in the market and is making it particularly difficult for first-time buyers to take their first step on to the property ladder," said Rics chief economist. Simon Rubinsohn.

"However, the level of buyer enquiries is still more consistent with the 2004/ 2005 experience rather than the collapse in the market in the early 1990s."

There are now fears problems in the property market could spread to the wider economy.

"The lowest rung of the ladder has broken, unfortunately taking out the buyers that allow 2nd time movers to step up," commented Katie Tucker, of mortgage brokers John Charcol.

"Between fuel prices, utility prices and food costs, the cost of living has soared in the past year, and the people arranging new or replacement mortgages are going to be the worst hit.

"When lower demand for property brings down the value, people perceive their wealth the have fallen, which knocks on to their other spending, causing long term problems to the consumer-dependent economy, not to mention a very real sense of insecurity."

Yesterday the Bank of England reported mortgage approvals had fallen to the lowest level since 1993.

However, the Bank's role is to maintain a grip on inflation and consequently is unlikely to cut interest rates.

"The risk that the current strength of oil and food prices could feed into wages means that the monetary policy committee (MPC) will probably prefer to cut rates at a more gradual pace than homeowners might prefer," Ms Earley.

The MPC has cut the base rate of interest three times in recent months, in December, February and April, bringing it down to five per cent.

"The Nationwide data add to the mounting evidence that house prices and activity are buckling markedly under the intense pressure stemming from stretched buyer affordability and very tight lending conditions," commented Howard Archer, or analysts Global Insight.

"Furthermore, potential house buyers now have to provide a higher deposit level, which is a particularly major problem for first-time buyers," he added.

Lenders, including Abbey and Nationwide have altered mortgage products in recent days, cutting the maximum loan-to-value on products and forcing borrowers to provide a larger deposit.

The news follows comments from MPC member David Blanchflower, who suggest house prices could fall 33 per cent.

However, this first annual fall, and any potential subsequent falls, must be taken in context, argues the National Association of Estate Agents (NAEA).

"We have been experiencing huge price leaps of double percentage points in the housing market in recent years so overall a one per cent drop is a tiny proportion of the rise and certainly not enough to throw many people into negative equity the way we saw it in the early ‘90s," explained Peter Bolton King, chief executive of NAEA.

Chris O'Toole