According to new statistics from Nationwide, annual house prices fell for the first time in 12 years in April, with prices dropping for the sixth consecutive month on a monthly basis.
And figures from the Bank of England show that mortgage approval levels are in decline as buyers approach the housing market with increasing caution.
Nationwide revealed that April house prices were down one per cent year-on-year compared with prices in April 2007. Chief economist, Fionnuala Earley, said: "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. This is the first year-on-year fall in prices since March 1996 and brings the price of a typical house to £178,555, £1,759 lower than at this time last year.
She added: "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 fall in transactions has pushed up the stock of unsold property on the market and improved the bargaining power of buyers, thus pushing down on prices."
However, chief executive at the National Association of Estate Agents, Peter Bolton King, urged homeowners not to panic. "This needs to be put into context," he said, "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.
He went on to say: "There is no denying that the credit crunch has affected confidence in the market but it is still important to remember that the underlying factors that support the property market remain: low unemployment, historically low interest rates and a pent-up demand for houses."
Meanwhile, the Bank of England has revealed that mortgage lending fell in March to £8.2 billion compared with £9.6 billion in February. It found that the numbers of loans approved for house purchase (64,000), remortgaging
(98,000), and for other purposes (57,000) were all lower than in February.
In response, director general at the Council of Mortgage Lenders, Michael Coogan, said: "It comes as no surprise that approvals for house purchase have continued to decline. This will result in a substantially lower level of housing transactions in 2008 than we saw last year."
He sees some hope for the mortgage sector, but believes a recovery will take time. "We believe that the Bank of England's Special Liquidity scheme will help to sustain confidence in the banking system and improve liquidity, but it is not an intervention specifically intended to re-invigorate the housing or mortgage markets," he said.
"We hope that some of the liquidity will be recycled down into the mortgage market. But it will take some months for this to happen and mortgage lending volumes are going to continue to fall before they improve because of the funding gap of around £30 billion."