House prices drop year-on-year for first time since 1996

House prices have fallen by 1 per cent during the past 12 months, the first year-on-year fall since 1996, figures showed today.

The cost of a home dropped for the sixth month in a row during April, sliding by 1.1 per cent, as the credit crunch continued to take its toll on the property market.

The fall helped turn annual house price growth negative for the first time in 12 years, leaving property values 1 per cent lower than they were in April 2007, according to Nationwide Building Society.

The average home in the UK now costs £178,555, £1,759 less than 12 months ago.

But the drop needs to be seen in the context of the strong house price growth seen in recent years, with house prices soaring by 45.5 per cent during the past five years.

Nationwide's chief economist Fionnuala Earley said: "April was another difficult month for the housing market.

"Falling levels of market activity meant that prices fell by 1.1 per cent during the month and ended up 1 per cent lower than this time last year.

"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."

But she stressed that the current situation was different to conditions leading up to the 1990s house price crash.

The figures come the day after the Bank of England said the number of mortgages approved for house purchase had fallen to a record low during March.

Just 64,000 loans were approved for people moving house during the month, the lowest figure since the Bank of England began to collect data in April 1993 and 44 per cent below March 2007's level.

Nationwide said the latest house price fall followed a steep decline in the number of homes changing hands during the past six months.

It said this fall in transactions had pushed up the stock of unsold properties on the market, improving the bargaining position of potential buyers and pushing down prices.

The housing market was already slowing down before the credit crunch hit due to stretched affordability following several years of strong growth.

But the the problems in the mortgage market have exacerbated the situation, with higher mortgage rates further increasing affordability problems, while the increasingly high deposits demanded by lenders are making it harder for first-time buyers to get on to the property ladder.

The Bank of England last week unveiled a £50 billion liquidity scheme to help ease the problems caused by the credit crunch.

Nationwide said the initiative should help to stabilise the wholesale financial markets, but added that it was unlikely to mean house prices and mortgage lending would return to the levels seen this time last year.

Ms Earley said: "Weakening housing market sentiment and demand, unrelated to the financial market turmoil, will mean that we should expect slower market conditions.

"However, the Bank's measures should help to restore a more orderly transition and ultimately bring about a more stable market."

The Nationwide figures are the latest in a line of gloomy data on the property market, with Halifax reporting price falls of 2.5 per cent during March, the biggest monthly drop since 1992.

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