House prices fell by 1.2% in August, marking the first fall in prices since April this year, according to Halifax.
Year-on-year, prices dropped by 2.6%, putting the average house price at £161,743.
However, the lender reports a second consecutive quarterly rise – a better measure of the underlying trajectory of house prices, according to Halifax. It shows prices in the three months to August were 1% higher than in the previous three months.
Very volatile market
Martin Ellis, housing economist at Halifax, blames the current low volume of house sales, which is rendering the market "very volatile" from month to month.
"The 1.2% fall in August follows three months when prices have risen. As a result, the more reliable quarterly change, which smoothes out some of the monthly volatility, shows a rise in prices of 1%," he says.
But it's not all bad news. Halifax highlights that lower mortgage rates have helped increase affordability for borrowers. The average mortgage rate for a new borrower has declined from 3.84 to 3.68% since mid-2007, a drop which is attributed to the recent fall in fixed rate products.
"A recent decline in average mortgage rates has further boosted home affordability for those able to raise a deposit to make a new purchase," says Ellis.
"Low interest rates are likely to continue to support the market whilst increased uncertainty about the economic outlook and pressures on householders' finances constrain demand."
Mortgage approvals up
Meanwhile, the Bank of England reports a modest pick-up in the number of mortgage approvals. 49,239 mortgages were approved in July, the third consecutive monthly rise.
The 100% mortgage is back
Going forward, Ellis adds that he expects "broad stability" in both prices and activity in the next few months.
Nicholas Ayre, a director of UK buying agents Home Fusion, comments that August's decline carries "symbolic weight".
He adds: "August was a catastrophic month for the global and UK economy and it may well have turned a flat UK property market into one that is falling. A double dip in the economy is becoming more and more realistic, and if the economy goes down, the property market will go down with it."
This article was written for our sister website Money Observer