House prices fall for fifth month in a row as property market crumbles

House prices fell for the fifth consecutive month in March as the market continued its downward trend, figures showed today.

The average cost of a home in the UK dropped by 0.6 per cent during the month to stand at £179,110, according to Nationwide Building Society.

At the same time, annual house price growth also continued to ease, slowing to just 1.1 per cent, its lowest level since March 1996, and less than half the year-on-year gain of 2.7 per cent recorded during February.

The average home now costs just £2,027 more than it did in March last year, with prices falling by 2.9 per cent during the past five months.

Fionnuala Earley, Nationwide's chief economist, said: "A clear change in sentiment since the late summer has led to the sharp slowing in house price growth, even in the less volatile three-month on three-month series.

"Prices on this measure are now 1.5 per cent lower than three months ago. The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year."

But she added that prices were still 11 per cent higher than they had been two years ago and 47 per cent higher than they were five years ago.

The group said deteriorating affordability, higher interest rates and slow earnings growth were already beginning to affect house prices in early 2007, although this was not reflected in consumers' expectations for property price growth.

But since September, people's expectations have been falling sharply, coinciding with the turmoil in the financial markets and the problems at Northern Rock, as well as a slowdown in annual house price inflation.

Nationwide said lower consumer expectations would cause at least some of the demand in the housing market to fall away.

Ms Earley said: "Once a general trend in expectation has been formed its effect is likely to be highly influential on both transactions and price levels.

"This happens, first by removing the urgency to move and second by giving buyers a bigger incentive to drive a harder bargain in order to hedge against any possible falls in prices."

The group said it expected a "modest fall" in house prices across the whole of 2008, adding that such a fall would ensure greater stability in the market going forward.

The Nationwide figures come the day after data from the British Bankers' Association showed that the number of mortgages approved for people moving house in February had fallen by a third compared with the same month of 2007.