UK house prices fall for first time since June 2015, Nationwide finds

UK house prices fell month-on-month this month for the first time in almost two years, according to a survey by Nationwide, knocking the annual growth to a 19-month low and adding to economist's predictions that growth will moderate over 2017.

The building society reported a 0.3% month-on-month decline in its house price index to 415.3, after taking account of seasonal effects, following the hefty increase of 0.6% to 416.7 in February and 0.2% rise in January.

However, the average house price in the UK, which is not seasonally adjusted, was £207,308 in March, up from £205,846 in February.

On an annual basis prices retreated to 3.5%, having inched back up to 4.5% in February from 4.3% in January, having been as high as as 5.6% last August.

The three-month growth rate dipped to 1.0% in March after picking up to 1.1% in February from the lows of 0.7% in both January and December.

Nationwide also noted that latest English Housing Survey from DCLG revealed a further decline in the home ownership rate to its lowest recorded rate since 1985, falling to 62.9% in 2016.

Nationwide's chief economist Robert Gardner said there was a mixed picture across the UK in the first quarter of 2017, with six regions seeing the pace of house price growth accelerate, six a deceleration and only the East Midlands recording the same rate as the previous quarter.

"Interestingly, the spread in the annual rate of change between the weakest and strongest performing regions was at its narrowest since 1978 at 6.8 percentage points – the second smallest gap on record," he said..

Not unusually, the south of England saw slightly stronger price growth than the north, while Northern Ireland saw a slight pickup in annual house price growth, while conditions remained relatively subdued in Scotland and Wales.

Economist Howard Archer at IHS Markit pointed out that the Nationwide data following on from the Bank of England reporting a dip in mortgage approvals in February, fuelling his belief that the housing market is being increasingly affected by the increasing squeeze on consumers and their concerns over the outlook.

"Markedly weakening consumer fundamentals, likely mounting caution over making major spending decisions, and elevated house price to earnings ratios are likely to weigh down on housing market activity and house prices. However, a shortage of supply is likely to put a floor under price," he said.

Consequently, he forecasts house price gains over 2017 will be limited to around 2.5%.

Sam Tombs at Pantheon Macroeconomics said as the dip in prices followed the hefty increase in February, he doubted that prices are now on a falling trend.

"Even so, Nationwide’s index indicates that house prices are rising at their slowest year-over-year pace since August 2015, and the slowdown is corroborated by other timely indicators from Halifax and Rightmove," he said. "Growth likely will continue to moderate as the pressure on households’ incomes from rising inflation intensifies and as employment growth remains weak.

"Meanwhile, prices won’t rise at a faster pace than incomes this year because mortgage rates have hit a floor and the FPC’s loan-to-income ratio rule is preventing leverage rising significantly further."

Tombs expect year-over-year growth in house prices to continue to trend down to just 2% by the end of this year.