Nationwide: House prices slip 0.9% in June

House prices continued to drop during June, with the average cost of a property falling by 0.9 per cent, according to the latest Nationwide house price index.

While less severe than the 2.5 per cent fall recorded in May, the drop does see year-on-year falls accelerate to 6.3 per cent.

According to the research, the average property in the UK now costs £172,415, some £1,168 less than last month.

However, the strength of house price growth up until last year means that prices are still four per cent higher than two years ago and nine per cent higher than three years ago.

To date only Scotland has been successful in avoiding an annual fall in house prices, with annual growth of 0.6 per cent recorded over the second quarter.

Northern Ireland, in comparison, has seen falls of 18.6 per cent over the same period, along with Wales, which has seen a dip of 7.6 per cent.

Nationwide argues it is falling transaction levels which are applying the biggest brake to the market.

"The level of transactions is a key driver of house prices. Changes in transaction levels are a good indication of the likely path of prices and across housing cycles have tended to lead changes in house prices by a few months," said Fionnuala Earley, Nationwide's chief economist.

"In the most recent cycle the number of house purchase approvals began to moderate in the first quarter of 2007, whereas annual house price growth did not begin to slow until the third quarter.

"The number of house purchase approvals per month is now at historic lows and in May was running at less than half of its long run average rate."

Research from the Bank of England finds transaction levels for house purchases fell 63.8 per cent in May – with just 42,000 approved.

"The Nationwide data indicate that major downward pressure on house prices continues to come from very weak market activity, stretched buyer affordability and tight lending condition," explained Howard Archer, chief economist with Global Insight.

"Elevated affordability pressures on potential house buyers stem from high house prices and modest disposable income growth, while very tight credit conditions are leading to markedly fewer and more expensive mortgages being available."

The depressed level of mortgage lending is likely to ensure the present slump persists for some months, argues Nationwide.

"It seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months," continued Ms Earley.

"However, as prices continue to fall affordability measures become more favourable for those in a well-financed position to buy."

Yet, even amid the turmoil, there have been some success stories.

Cambridge, Canterbury and Oxford have all seen average prices increase by four per cent over the last year, while Carlisle and Aberdeen saw a three per cent jump.

Chris O'Toole