Nationwide says the 1.5% year-on-year fall in June is the biggest since August 2009, but the picture is mixed across the country
House prices in June showed the largest annual rate of decline in nearly three years amid a "challenging" economy, the Nationwide said today.
Prices slipped 1.5% year-on-year to £165,738 on average – the biggest fall since August 2009, according to the building society's latest house price index.
The picture was mixed across the country, however. Average house prices in the UK fell by 1% in the second quarter of 2012, but in London they were up 1% during this period. Average prices in the capital have now virtually recovered to their 2007 peak.
The report suggested the general decline, which also showed a 0.6% month-on-month decrease in June, was partly due to the ending of a stamp duty concession for first-time buyers in March, which had the effect of bunching up sales.
It said there were "few signs of a near-term rebound", as economic conditions remain tough. Robert Gardner, Nationwide's chief economist, said prices are likely to remain "fairly stable" over the next 12 months amid a lack of homes on the market, continuing a trend seen over the past two years.
"The slightly weaker trend we've observed since March is unsurprising, given the difficult economic backdrop, with the UK economy dipping back into recession at the start of the year and few signs of a near-term rebound," he said.
There are hopes that a "funding for lending" scheme announced by the Bank of England and the Treasury earlier this month could help kick-start lending.
Analysts have said this may put the brakes on recent rate rises, although those currently unable to get a mortgage may see little improvement.
Nationwide said the volatility caused by the ending of the stamp duty holiday for first-time buyers made it even harder to uncover the underlying trend. Mortgage lending to first-time buyers in March totalled £3bn, around 40% above usual levels.
Nationwide estimated that more than 200,000 first-time buyers benefited from the stamp duty concession during the two years it was in place, saving a total of nearly £375m or about £1,800 each.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "While the recent lending figures from the Council of Mortgage Lenders were encouraging, here we are back down to earth with a bump. The Olympics and traditional summer lull mean the next few months look set to be even more challenging.
"However, a number of lenders have reduced their fixed rates in the past couple of weeks, reflecting cheaper Swap rates and a desire to transact some decent levels of business ahead of the quieter summer months, so those looking for a mortgage will find some good options at the moment."
Howard Archer from IHS Global Insight concurred: "The Nationwide data reinforce our suspicion that house prices will trend gradually lower over the second half of 2012.
"Furthermore, there remains a significant danger that house prices could fall even more than this due to the serious downside risks to the UK economic outlook, particularly stemming from the problems in the eurozone centred on Greece and Spain."
British Bankers' Association (BBA) figures for May showed that mortgage repayments outstripped lending for the first time, as Britain's households became more cautious.
Net mortgage lending declined by £73m – the first reversal in the 16 years that records have been compiled by the BBA.
Households have been focusing on paying down their debts, but it has also become more difficult to take out a mortgage in recent months as lenders have been tightening their borrowing criteria and raising their rates in response to the weak economy and the ongoing eurozone crisis.