House prices fall for second month in a row

The winter freeze on house prices continued in January as property values fell for the second consecutive month, according to the latest data from Nationwide.

Average house prices fell by 0.2% last month after an identical drop was recorded in December. The fall leaves the average UK house valued at £162,228. Year-on-year, property prices were up a very modest 0.6% in January.

On a quarterly basis, a measure many analyst consider to be a more accurate barometer of market direction, prices were up by 0.3% last month.

Nationwide said it expected prices to “move sideways or only modestly lower in the months ahead”. It cited concerns about the labour market and the general state of the economy as two factors that are likely to hold prices back over the next 12 months. It also said that affordability and access to mortgage funding is still a major problem for first-time buyers.

Despite the fact that mortgages are cheaper now than they have been for almost 10 years, potential borrowers need to raise a substantial deposit before they can secure the loan they need to buy a home. The average median deposit required by a first-time rocketed from 10% before the beginning of the credit crunch to 25% afterwards. Although the average deposit required has fallen back to around 20%, this still means a first-time buyer would need to raise more than £30,000 to buy a typical British home.

Finding a deposit is unlikely to become any easier in the year ahead if household budgets come under increasing pressure and unemployment continues to rise.

Robert Gardner, Nationwide’s chief economist, said: “Given the challenging conditions prevailing in late 2011, with the UK economy contracting in the final three months of the year, it’s not surprising that house price growth softened at the start of 2012. The price of a typical house fell by 0.2% in January, taking the annual rate of house inflation down to 0.6% from 1% in December.

“The demand/supply balance may move further in favour of buyers in the months ahead. The economy is not expected to gather much momentum until the second half of 2012 at the earliest, which suggests that labour market conditions and buyer sentiment may be slow to improve.”

A separate report from the Land Registry showed that prices actually dropped by 1.3% in 2011. Prices fell in every region except for London where the average property rose in value by 2.8% to £345,000. Prices in the north-east plummeted by 7.1% to £99,464, the lowest level in eight years, making it the only region in the UK where average prices are now below the £100,000 mark. In contrast, the average price of a property in Kensington and Chelsea rose by 7.2% to £967,951 last year.