House prices in the UK have dived by 2.7% during August as the number of first-time buyers getting on to the property ladder slumped to a record low, figures showed today.
The average cost of a home in Britain dropped to £211,410 (€271,81) during the month, driven down by a 5.1% fall in the value of flats and a 3% slide in the cost of terrace houses, according to Communities and Local Government.
The figures came as the Council of Mortgage Lenders said just 15,600 people bought their first home during the month, the lowest level since it began to collect data in 2002 and less than half the 34,800 who bought a property in August last year.
The drop was accompanied by a further tightening in lending criteria, with first-time buyers now putting down average deposits of 16%, the highest level recorded by the CML, and borrowing just 3.18 times their income - the lowest multiple since March 2006.
Across all buyers, a total of just 42,200 mortgages worth £6bn (€7.7bn) were advanced for house purchase during August, both new record lows.
Gross lending for the month, which includes all types of mortgages, totalled £19.7bn (€25.3bn), a 20% fall compared with July's figure and 42% below the sum advanced in August 2007. It was also the lowest monthly level since February 2005.
The mortgage squeeze is continuing to have an impact on the housing market, with estate agents now struggling to sell even one property a week.
The Royal Institution of Chartered Surveyors said its members had sold an average of just 11.5 homes during the three months to the end of September, the lowest level since its survey first began in 1978.
The situation is even more severe in London where estate agents have made an average of just eight sales during the period.
At the same time, the number of surveyors reporting house price falls during September also increased for the first time since April.
Overall, 84.2% more chartered surveyors reported seeing further price slides during the month compared with those who saw price rises, up on the figure of 81.8% more who reported falls in August.
Figures from CLG showed that house prices lost 3.4% of their value during the year to the end of August, after the annual rate of house price inflation fell for the 10th month in a row.
The fall is far less severe than the drop of 12.4% recorded by both Halifax and Nationwide for the year to the end of September, but the CLG figures tend to lag other indexes, and further steep falls are expected in the months ahead.
Meanwhile, an economist told MPs that house prices could fall by a further 5% to 10% before the bottom of the market was reached.
Appearing before the Treasury Select Committee, David Miles, Professor of Finance at Imperial College London, said further falls of this level, which would leave homes around 20% cheaper than they were at their peak, could mean the housing market would stabilise.
He added that the falls needed before the market bottomed out could be "much smaller" if the cost of funding fell by a further 50 basis points.
But he said house price expectations were a "dominant factor" in the market, and at the moment, buyers and sellers were unable to agree prices because of expectations that property values would fall further.
He said: "There is a stand-off in many parts of the country between people who have got a house to sell and people who have got mortgage credit, and they cannot agree on a price."
Bob Pannell, head of research at the Council of Mortgage Lenders, who was also appearing before the committee, said the measures introduced to help the banking sector over the past week, would "not necessarily themselves kick-start or stabilise the housing market".
"We may need specific measures targeted at the housing market," he said.
He added that he still looked forward to the recommendations of the Crosby Report on the mortgage market, which should be made public shortly after being delayed due to the recent financial turmoil.
Economists are not expecting the housing market to improve in the near future.
Seema Shah, property economist at Capital Economics, said: "Over the coming months, the supply of mortgage credit may increase slightly.
"But as the economy contracts, we expect buyer interest will wane further. As a result, housing market activity levels will remain very subdued and house prices will continue to fall."
Howard Archer, chief UK and European economist at Global Insight, said: "Housing market activity and house prices seem poised for further weakness as the fundamentals remain pretty ugly even though tracker mortgage rates have fallen following the Bank of England's 50 basis point interest rate cut last week."