The market has now seen house price falls for seven months in a row which Nationwide says is the longest consecutive period of monthly falls since 1992.
Prices are now 4.4 per cent lower than this time last year but they still remain 5 per cent higher than two years ago.
Nationwide says falling house prices combined with higher inflation makes the Monetary Policy Committee’s decision more difficult.
But it points out that tighter credit conditions should help the longer term sustainability of the market.
Nationwide chief economist Fionnuala Earley says:”The pace of house price falls accelerated in May as more weak economic news added to the gathering momentum of negative sentiment about the housing market. House prices fell by 2.5% during the month, the largest recorded monthly fall in the history of the Nationwide monthly index.
“At seven months, this is also the longest consecutive period of monthly falls since 1992. Prices have fallen 4.4% since this time last year, the biggest annual fall in house prices since December 1992 when prices were falling at an annual rate of 6.3%. The price of a typical house is now £173,583, £8,000 less than this time last year. However, the strength of house price growth up until last year means that prices are still 5% higher than two years ago and 10% higher than three years ago.”
Liberal Democrat Shadow Chancellor Vince Cable says: “This freefall in house prices is becoming worryingly reminiscent of the Tory recession of the 1990s. The reality is that the housing market has been seriously overvalued for some time thanks to massive consumer debt. Even the Government now admits we will see a large correction over the next one or two years. With falling house prices and high mortgage costs there is a real danger that many people could find themselves in negative equity and under serious threat of repossession. It is essential that we protect families in danger of losing their homes, ensuring repossession is only ever an extreme last resort. Otherwise the housing market may well suffer the same massive crash that we saw under the last Conservative Government.”