Last month saw house prices fall by a further 1.7 per cent as mortgages continue to be like gold dust and household income is stretched, according to Halifax.
The average house in Britain is now worth £177,351, with July's drop in value culminating in a total annual reduction of 8.8 per cent, Halifax House Price Index
However, they did not lose as much value as in previous months; May saw 2.5 per cent wiped off the value and June's average price fell by 1.9 per cent.
"Pressure on householders' income, together with a very significant reduction in mortgage
finance due to the global financial markets crisis, is constraining potential house buyers' ability to enter the market," commented Suren Thiru economist at Halifax. "This is resulting in both lower prices and activity levels."
However, she added that "A solid labour market, low interest rates and a shortage of new houses continue to support the market. The labour market is the key driver of the housing market and the number of people in employment is at a record high."
House prices in the UK have now fallen back to what they were in June 2006, but despite the annual decline, they are still a third higher than they were five years ago, when the average price was £132,371.
The average house is worth 145 per cent more than a decade ago, when it stood at £104,888.
Any spare income which households had this time last year is rapidly being swallowed up by soaring fuel bills
and the cost of food, which have so far increased by 14 per cent and 11 per cent respectively in the last 12 months.
Income inflation has not moved fast enough to counteract this rise in the cost of living, rising just 3.8 per cent compared to a 4.3 per cent rise in retail price inflation, effectively causing income to reduce.
The level of interest in house purchase has fallen considerably since the credit crunch struck last summer, with mortgage approvals for the second quarter 60 per cent lower than in the same period last year, but it slowed its decline for the second consecutive month in June.
Offering a glimmer of hope for existing homeowners, the Bank of England found that the average mortgage rate has fallen 21 basis points since January, from 5.97 per cent to 5.76 per cent, despite the increase in rates on a first time buyer mortgage
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