House prices fell for the second consecutive month in August, figures from Nationwide suggest, but the building society says the correction is "not unhealthy".
Price fell 0.9% last month following a 0.5% fall in July. Annual house price inflation, which compares the current average price with that of 12 months ago, now sits at 3.9%. This is a sharp fall from the rates of 6.6% in July and 8.7% in June.
Nevertheless, Nationwide says the current correction was "not an unhealthy development".
The average house price across the UK was £166,507 in August compared to £169, 347 in July.
Nationwide's house price index figures for the three-month rate of change showed that property prices have stagnated over the summer with a 0% rate of growth in August down from 1.2% for the three months to July.
Martin Gahbauer, chief economist for Nationwide, says: "This is the first time since February 2009 that house prices have fallen in two consecutive months.
"Unless house prices bounce back strongly in September, the three-month rate of change will turn negative next month."
Gahbauer says recent market trends are consistent with the change to the supply-demand imbalance that drove up prices for much of 2009. Increasing numbers of sellers have returned to the market meaning buyers have greater choice and bargaining power to bring down asking prices.
He adds: "There is little evidence of distressed selling, however, with the CML's second quarter figures showing another drop in mortgage arrears and possessions.
"As such, the current period of price declines is likely to remain relatively modest. Given that the price increases of the last year had got ahead of the recovery in the wider economy, the current correction is not an unhealthy development."
Nationwide's research showed that more borrowers are now on variable rate mortgages. Between Q4 2008 and Q1 2010, the proportion of mortgage balances on fixed rates fell from 48% to 36%, as fewer borrowers chose to remortgage to a new fixed rate deal as SVRs fell low.
Gahbauer says: "Borrowers on variable rates have experienced a very large cash flow benefit from the reduction in the Bank of England base rate in late 2008 and early 2009."
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