The lender says the average house price in April fell by 1.1% leaving the house prices down by 1% compared to last year.
This is the first year-on-year fall in prices recorded since March 1996 and brings the average house price to £178,555 – a drop of over £1,500.
Fionnuala Earley, chief economist at Nationwide, says: “The latest fall in house prices follows from the steep decline in house purchase transactions over the last half year.
“As a result of falling demand from first-time buyers, higher mortgage rates and tighter lending criteria, the number of mortgages approved for house purchases has fallen to record lows.
“The fall in transactions has pushed up the stock of unsold property on the market and improved the bargaining power of buyers, thus pushing down on prices. “
But she says that while it’s unlikely that the Bank of England’s move to inject liquidity in the markets is unlikely to return either the housing or mortgage markets to their former glory, combined with the rate cut April it should bring some stability to the market.
And Earley says the majority of home owners are not feeling the cuts in base rate or the squeeze on liquidity. She says the real concern is borrowers coming off of rates in the coming months.
Earley says: “Those borrowers who will be most affected by higher mortgage rates are those whose deals are set to expire. The Council of Mortgage Lenders has estimated that 1.4 million borrowers will be coming off relatively cheap fixed rate deals over the course of 2008.
“In addition, we estimate that a further 400,000 borrowers will come to the end of tracker or discount deals over the whole of 2008, and these borrowers may also face a fairly significant payment shock. However, the total number of deals expiring in 2008 represents only about 15% of outstanding mortgages.”
Peter Bolton King, chief executive of the National Association of Estate Agents, says that with UK house prices experiencing huge leaps of double percentage points in recent years, overall a 1% drop is a tiny proportion of the rise.
He adds: “It’s certainly not enough to throw many people into negative equity the way we saw it in the early ‘90s.
“In addition, a national picture can only tell a bit of the story. We can see from other surveys that the picture is mixed across the country and some areas will be more affected than others, so people really need to look to their local markets to get a true picture.”