Property prices are now falling at the fastest rate since Nationwide began recording data in 1991, according to the building society’s latest house price index.

Average falls across the country totalled 1.7 per cent in July – more than double the 0.8 per cent decline recorded in June.

Consequently the annual fall in house prices now stands at 8.1 per cent, the fastest rate of decline for nearly 20 years.

The average property price in the UK has now fallen £3,099 – down from £172,415 in June to £169,316 in July. This is the lowest level since August 2006.

“The Nationwide data indicate that there is ongoing major downward pressure on house prices from extremely weak market activity, stretched buyer affordability and tight lending conditions,” said Howard Archer, of analysts Global Insight.

“Indeed, it seems odds-on that house prices will continue to head rapidly south given that the Bank of England reported extremely low mortgage approvals for house purchases in June, while latest survey evidence shows that house sales are depressed, buyer interest is weak, it is taking longer to sell a house, and sellers are achieving a falling percentage of their asking price.”

Falls in average prices are precipitated by a reduction in demand.

With lenders tightening criteria for mortgage loans, borrowers have been unable to secure the necessary finance and thus have been unable to purchase property.

However, wider economic factors are also now taking a toll, finds Nationwide.

While GDP estimates for the second quarter show a slowing in each of the main economic sectors, retail sales have been in decline, and inflation remains well ahead of target.

The consumer prices index (CPI), one of the government’s main inflation measures, presently stands at 3.9 per cent, according to Office for National Statistics (ONS) research, well ahead of the Bank of England’s target of two per cent.

All these factors have contributed to a negative economic environment, and have proved to the detriment of the housing market.

“The weakening economy and poor housing market sentiment do not suggest that the market will recover quickly,” said Fionnuala Earley, Nationwide’s chief economist.

However, there was once glint of light for the future. The Bank of England is now unlikely to increase interest rates further, in the face of such a sharp decline, which has had a positive impact on Swap rates.

Swap rates – the rate at which banks lend to each other – peaked in mid April, and have been in decline since. This reduced the cost of wholesale borrowing, and allows lenders to meet mortgage demand.

“The encouraging news is that this has filtered through to the Swaps market,” explained Ms Earley.

“Swap rates have fallen which has allowed new fixed mortgage rates to come down.”