Nationwide: House prices fall at fastest pace in three years

UK house prices fell at their fastest annual pace in nearly three years in July, sliding 0.7pc, according to mortgage lender Nationwide.

The decline is much bigger than forecast by economists as the effects of nine months of recession spread further across the economy.

Prices are now 2.6pc lower than a year ago - their biggest annual fall since August 2009, said the Nationwide in its latest house price survey .

Britain's economy entered recession at the end of last year, and shrank a bigger-than-expected 0.7pc in the second quarter of 2012, as bad weather and an extra public holiday added to the effects of public spending cuts and the debt crisis in the euro zone.

"The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy," said Nationwide's chief economist, Robert Gardner.

House prices and the rest of the economy were only likely to recover modestly in the coming quarters, as the eurozone crisis would limit gains from more Bank of England stimulus and a government programme aimed at increasing mortgage and business lending, Nationwide said.

Earlier this week, the Bank of England reported that mortgage approvals and lending - leading indicators for house prices - fell to an 18-month low in June.

British house prices are now 13pc below their 2007 peak, compared to a decline of more than 15pc in the US and nearly 25pc in Spain, Nationwide said.

Along with a lack of house building before the financial crisis, this resilience was probably also due to the relatively small rise in British unemployment since the financial crisis, Nationwide said.