House prices set to fall by up to 2pc

The increase in new homes coming on the market has outstripped the numbers of potential buyers registering with estate agents for the last three months, and the gap is set to widen as the seasonal summer slowdown kicks in, property analysts Hometrack said.

Prices remained flat across England and Wales in June month-on-month, following three consecutive months of rises, and London was the only region to see an increase, with a 0.3 per cent rise.

Prices were unchanged month-on-month in the South East and Wales, dropped by 0.1 per cent in the East Midlands and the South West, and fell by 0.2 per cent in East Anglia, the North East, the North West, the West Midlands and Yorkshire and Humberside.

The weakening demand from buyers was reflected in new buyer registrations with estate agents declining for the first time in five months, with a 0.5 per cent month-on-month fall in June.

The study said the Olympics is likely to contribute further to the subdued housing market, which is showing signs of weakening in southern regions outside London, areas which have often performed relatively strongly.

The time a property takes to sell in these southern regions has risen to 8.4 weeks, from eight weeks in April, and sellers there are also showing they are increasingly prepared to “take a larger hit” on asking prices to push a sale through, Hometrack said.

Richard Donnell, director of research at Hometrack, said: “Overall, we expect uncertainty and weaker demand to result in prices slipping by one to two per cent over the next six months as prices soften in higher value areas in southern England.

“The market continues to remain fragile in the regions away from southern England, where economic growth is more subdued and the balance between supply and demand is less pronounced.”

He said that while low interest rates have helped to support prices, enabling people to borrow more cheaply, “the greatest risks in the short-term stem from the problems in the eurozone”.

Prices also fell by 0.5 per cent year-on-year in June and the greater difficulty faced by borrowers in taking out a mortgage is also likely to have an impact soon.

A Bank of England report last week said that lenders are set to tighten their borrowing criteria further amid the weak economy and borrowing will become more expensive. People with smaller deposits were predicted to face a particularly tough time trying to find a deal and lenders have already been steadily raising their mortgage rates in recent months.