House prices plunge amid fears over supply and demand gap

House prices have fallen for the first time in seven months as the number of potential buyers shrinks while the volume of homes going on the market rises, according to a new study.

It warns the gap between supply and demand is set to widen following an early and unusually rapid seasonal summer slowdown, meaning prices are likely to fall further in the coming months into autumn.

But first-time buyers and those will small deposits will not benefit as mortgage lenders tighten their criteria amid ongoing economic uncertainly, property analyst Hometrack is warning.

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Prices fell by 0.1 per cent in July after being flat last month, with activity slowing down notably in London and the South East, which have been supporting the market and keeping average prices up.

Meanwhile, price falls in the northern regions, which have been bigger than those in the South, could be “bottoming out”, the study suggested.

London was the only region to register a price increase in July, with a rise of 0.1 per cent, but the rate of growth has slowed, according to the findings. The North East saw the biggest price fall, with a 0.5 per cent drop.

Prices in the North West decreased by 0.3 per cent and those in the South West, Wales, the West Midlands and Yorkshire and Humberside fell by 0.2 per cent, while prices in the East Midlands and the South East dropped by 0.1 per cent and remained flat in East Anglia.

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The mismatch between buyers and sellers was shown by the number of new potential buyers registering with estate agents decreasing by 2.1 per cent this month, as the volume of homes being put on the market rose by 1.4 per cent.

The number of new properties for sale has increased by 5.2 per cent over the past three months, while demand has fallen by 2.2 per cent over the same period.

The South East saw the biggest fall in demand in July with potential buyers decreasing by 3.4 per cent, while London also saw an above-average decline of 2.4 per cent.

The report follows figures from the Land Registry last week which showed sales of prestige homes continued on a downward spiral after the Government introduced a stamp duty increase on properties worth more than £2m in March.

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The number of homes which sold for more than £2m saw a 40 per cent year-on-year fall in April to 114, following an equally dramatic 40 per cent annual drop recorded in March during last month’s study.

Yorkshire and the Humber saw the biggest annual price fall with a dip of 1.9 per cent as well as the biggest monthly fall with a 0.3 per cent drop taking typical prices to £117,908.

Richard Donnell, director of research at Hometrack, said: “Weaker demand is to be expected over the summer months, but, the seasonal slowdown has started earlier and developed more rapidly than in previous years.

“This reflects growing concern over the UK’s economy and the deepening eurozone crisis.”

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Borrowers with smaller deposits, such as those looking to get a step up onto the property ladder, are expected to have a particularly tough time finding a mortgage in the coming months as lenders continue to tighten their criteria in the uncertain economy, although there have been some recent signs of increased competition to attract those with larger amounts of equity.

Figures from the British 
Bankers’ Association (BBA) published last week showed that mortgage approvals were at their lowest level in at least 15 years in June.

The Hometrack study said homes are staying on the market for 9.5 weeks on average, a slight increase from 9.4 weeks in June.