House prices fall 0.5 percent in July

People view properties advertised for sale in the window of an estate agent in west London January 2, 2009. REUTERS/Stephen Hird

LONDON (Reuters) - House prices fell 0.5 percent month-on-month in July after a flat month in June, the Nationwide building society said on Thursday, as concerns about the impact of government austerity measures dampened demand.

There was also a sizeable drop in the annual rate of house price inflation, which slowed to 6.6 percent this month -- its lowest since December -- from 8.7 percent in June.

The month-on-month fall, the first since February, was larger than the 0.2 percent drop forecast by analysts in a Reuters poll, and took the price of an average house to 169,347 pounds.

“A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources,” said Martin Gahbauer, Nationwide’s chief economist.

Gahbauer said last week’s growth figures, which showed that the British economy recovered faster than expected in the second quarter, were encouraging but not enough to allay buyer worries over their future finances.

“Concerns about the medium-term impact of fiscal austerity on personal finances is more than outweighing any potential optimism about the recovery’s short-term cyclical momentum,” he said.

Nationwide said there was also evidence that the imbalance between supply and demand, which helped push prices up during 2009, was easing as sellers were encouraged back to the market by the abolition of home information packs.

Bank of England figures last week showed mortgage approvals dropped in June in a further sign the housing market is flagging, while on Monday property data company Hometrack said house prices fell for the first time in 15 months in July.

Most economists expect the housing market will continue to cool in the second half of this year as Britain’s economy struggles to recover after an 18-month recession and the government tackles a budget deficit of around 11 percent of national output.

Reporting by Kylie MacLellan; Editing by Hugh Lawson