House prices dropped 0.8% in September

House prices fell by 0.8% during September as the property market continued to slow down, figures showed today.

The drop, which wiped out the 0.7% increase seen during the previous month, left the average UK home costing £211,815, according to Communities and Local Government.

The quarter-on-quarter growth rate, generally seen as a smoother indicator of market trends, also fell into negative territory.

Property prices dropped by 0.7% during the three months to the end of September, compared with a 1.6% rise in the quarter to the end of June.

The figures suggest the CLG index, which is based on mortgage competitions and tends to lag behind other measures, is now catching up with other indexes, which have shown house price falls for some time.

Halifax reported a record 3.6% fall in property values during September, while Nationwide has shown that house prices either fell or remained static during each of the five months to the end of October.

The turnaround in the housing market has been caused by potential buyers putting decisions to move on hold until the outlook for both property prices and the wider economy becomes clearer.

At the same time, the ongoing problems in the mortgage market mean many people who would still like to move are unable to do so, further contributing to a drop in demand.

But sellers have continued to come to the market, creating over-supply and putting downward pressure on prices.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The September CLG data reinforce our belief that house prices will trend down relatively gradually over the final months of 2010 and in 2011 to lose around 10% in value from their peak 2010 levels.

"There may well be significant volatility around this overall downward trend.

"Much will obviously depend over the coming months on mortgage availability, the amount of houses coming onto the market and how well the economy holds up as the fiscal squeeze increasingly kicks in."

The annual rate of house price growth fell for the fourth consecutive month, dropping to 6.1% in September, down from 8.1% in August.

The year-on-year rate at which house prices are rising fell in all regions of England during the month, except Yorkshire and the Humber, where it rose slightly from 3.4% to 3.6%.

Some areas saw dramatic falls in annual house price inflation, with the rate of growth more than halving in the South West, dropping from 10% to 4.9%, while in the North East it fell from 5% to 1.7%.

But Wales and Scotland both saw an increase in the annual growth rate, with it rising from 5.5% to 8.8% in Wales and from just 0.5% to 1.4% in Scotland.

There was also a significant slowdown in the rate at which house prices are falling in Northern Ireland, with the annual pace of decline dropping from 17% in August to 7.6% in September.

The CLG figures come the day after data from property website Rightmove showed that sellers had slashed their asking prices by 3.2% during the four weeks to November 6, as they accepted the realities of the current market.

Paul Diggle, property economist at Capital Economics, said: "The second fall in the Government's measure of house prices in almost a year-and-a-half suggests that the recent weakness picked up by the more timely indices is finally showing through in house prices at the completion stage.

"With the economic recovery set to slow considerably and unemployment rise as public sector job losses hit home, we believe that the recent weakness in house prices is here to stay."