House prices fell month-on-month in March while annual rates slumped to the slowest growth since August 2015 as demand for home ownership continues to fall.
Prices rose by an annual rate of only 3.5 per cent in the year to March, while prices actually fell during the month by 0.3 per cent, according to the Nationwide house price index.
That was the first time house prices had fallen during the month since June 2015.
The average house price across the UK was £207,308, Nationwide said, less than half the average in London of £478,782.
However, the fastest-growing region for prices was East Anglia, with 5.7 per cent growth over the last year.
Separate government figures show the rate of home ownership has fallen to its lowest level since 1985.
Robert Gardner, Nationwide's chief economist, said: “The counterpart to this trend has been robust growth in the private rental sector, with 20 per cent of households in England now privately rented, a record high, up from 12 per cent 10 years ago.”
Private rental has increased by 75 per cent over the past 10 years to number some 4.5m households, he noted.
The longer-term trend of the rise of the rental economy may combine with a shorter-term squeeze on real incomes to depress house price growth further.
Inflation in the UK has risen sharply to 2.3 per cent as the effect of the post-referendum devaluation in sterling feeds through to consumer prices.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Growth likely will continue to moderate as the pressure on households’ incomes from rising inflation intensifies and as employment growth remains weak.
“Meanwhile, prices won’t rise at a faster pace than incomes this year because mortgage rates have hit a floor and the [Financial Policy Committee’s (FPC)] loan-to-income ratio rule is preventing leverage rising significantly further.”
The FPC rule prevents mortgage lenders’ from making more than 15 per cent of their loans to more than 4.5 times borrowers’ incomes.