British house prices fell 0.5% month-on-month in July after a flat month in June, the Nationwide building society said today, 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% this month - its lowest since December - from 8.7% in June.
The month-on-month fall, the first since February, was larger than the 0.2% drop forecast by analysts, and took the price of an average house to £169,347 sterling.
'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.
He 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,' the economist 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.
UK mortgage approvals fall back
Separate figures from the Bank of England showed that British mortgage approvals fell by more than expected in June as overall lending stalled.
The bank said mortgage approvals - a gauge of house prices around six months down the line - numbered 47,643 in June, falling from a downwardly revised 49,461 in May and below forecasts for 49,000.
Net mortgage lending growth eased to £665m in June from May's downwardly revised £838m, also below forecasts.
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% of national output.
