The price of an average house dropped during July to £169,316 says the latest report from Nationwide, bringing the annual fall to 8.1% although prices on average are still £11,000 higher than three years ago.

Activity in the housing market has slowed to almost a third of the transactions achieved last June, with no expectation of these numbers growing. The report says that 22% more lenders now expect that there will be less credit available to households over the next three months, which could limit a recovery in transactions. In addition to this, there are 41% fewer first-time buyers now than at the same time last year, which may be due to people waiting until prices fall further, or frustration in obtaining finance, which means that chains become longer and are more likely to break down.

‘As the cost of mortgages begins to come down, activity could be bolstered and restore some liquidity to the housing market. However, this is not likely to happen overnight,’ said Chief Economist Fionnuala Earley. ‘Overall the weakening economy and poor housing market sentiment do not suggest that the market will recover quickly. But, if oil prices continue to fall and the MPC is satisfied that its inflation credentials are intact, the possibility of earlier rapid cuts in interest rates increases, which would be good news for borrowers.’

Economists are, however, doubtful about a recovery: ‘Finally, with household incomes taking another huge hit from the rise in gas and electricity prices announced yesterday, and growing numbers of borrowers facing the prospect of negative equity, the appetite among borrowers is likely to remain pretty limited, regardless of what happens to the supply of mortgage credit,’ said Ed Stansfield from Capital Economics. ‘In other words, the downward pressure on house prices is likely to remain in place for some time.’