House prices fell much faster than expected last month but further declines are likely to be modest, mortgage lender Nationwide said on Thursday.
Nationwide said seasonally adjusted house prices dropped 0.9 percent in August after a 0.5 percent decline in July, a much bigger fall than the 0.2 percent that economists had forecast and the sharpest drop since February.
July and August marked the first two consecutive monthly price falls since the decline in British house prices levelled off in February 2009, and the annual rate of house price growth slowed to 3.9 percent from 6.6 percent, well below forecast.
Nationwide said the falling prices were due to a greater availability of property for sale, and that any future declines were likely to be relatively modest as low interest rates meant there were few forced sellers of repossessed property.
A dearth of supply had driven prices up by around 10 percent in the 12 months to April after a 20 percent fall between mid 2007 and early 2009.
Given that the price rises of the last year had gotten ahead of the recovery in the wider economy, the current correction is not an unhealthy development, said Nationwide economist Martin Gahbauer.
Planned government spending cuts and weakness in Britain's U.S. and European export markets mean most economists expect broader economic growth to slow sharply from the nine-year high of 1.2 percent recorded in the second quarter of this year.
(Reporting by David Milliken; Editing by Ruth Pitchford)