U.K. house prices declined more than expected and also fell by the fastest pace since August 2009 in July, as the economic downturn dragged housing market activity.
House prices were down 2.6 percent in July from a year ago, after a 1.5 percent drop in June, data from the Nationwide Building Society showed Wednesday.
The annual drop was the largest in three years and exceeded the 1.9 percent decline forecast by economists. Prices of a typical house now stands at GBP 164,389.
On a monthly basis, house prices slipped 0.7 percent, slightly more than the 0.6 percent decrease seen in the prior month and the 0.2 percent drop expected by economists.
Although economic output fell by more than 1 percent, the labor market added almost 250,000 jobs in the last seven months, Nationwide noted. But this pattern of negative economic growth and steady employment growth cannot be sustained indefinitely.
The mortgage lender said the future will depend much on the ability of the U.K. economy to gain momentum in the quarters ahead. The economy will receive Olympics-related boost in the third quarter.
Also, the stimulus measures taken by the government and the Bank of England should support both the economy and the housing market in the coming months, it said.
Given the deteriorating situation in Eurozone and few signs of recovery in domestic demand, Nationwide expects only a modest recovery in the housing markets over the quarters ahead.
According to BoE data, mortgage approvals fell sharply to 44,192 in June. The success of the new Funding for Lending Scheme will depend on the demand for credit.
The Bank of England introduced the Funding for Lending Scheme in early July to boost lending, after increasing quantitative easing by GBP 50 billion.
IHS Global Insight's economist Howard Archer sees some support to house prices from a shortage of properties on the market. But he expects house prices to fall by at least 3 percent from current levels.
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