House prices fell by 0.9 per cent in June, less than half the 2.5 per cent fall seen in May, according to the latest Nationwide house price data.
The house price fall for June remains significantly high, despite it being a slower decrease than previously seen. The average UK house price now stands at £172,415 and 6.3 per cent - £11,500 - lower than in June last year.
Despite the price drops of recent months, the housing boom that continued until late 2007 means that house prices remain four per cent higher than two years ago and nine per cent higher than three years ago.
In previous reports on the current falls in house prices, experts have insisted the market will remain strong as a result of a strong economy. However, Nationwide's chief economist Fionnuala Earley spoke of dangerous inflation levels and its potential impact on the economy if the Monetary Policy Committee (MPC) fails to rectify the current situation with tweaks to the Bank of England base rate. She said:
"The adverse inflation developments along with the surprisingly strong retail sales data clearly make it less likely that The Bank of England will be able to rapidly reduce interest rates in response to a slowing economy. Our central expectation is that wage growth will remain stable, consumer spending will come under increasing pressure in the coming months and that the economy will continue to slow."
According to Ms Earley, "the level of housing transactions is a key driver of house prices." And, as mortgage rates
become less realistic as a result of the inter-bank lending rate (swap rate) mortgage approvals have dwindled. According to the latest data from the Bank of England
, house purchase approvals fell sharply in May down to just 42,000 from 58,000 in April.
Ms Earley commented: "The tightening of credit conditions over previous months along with changing expectations of house price growth and a general weakening in consumer confidence in the economy have hit mortgage demand and led to a severe slowing in the levels of housing market activity."
According to Ms Earley, despite the poor market conditions as a result of increasing mortgage fees and deposits and decreasing mortgage
availability, "first-time buyers activity as a proportion of overall house price purchase completions has held up fairly well," accounting for around one third of transactions in the first quarter of the year.
Offering an insight into the future housing market, she concluded: "With house purchase transactions so far below their long term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months. However, as prices continue to fall, affordability measures become more favourable for those in a well financed position to be able to buy."
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