Home owners must reduce prices by 10pc to sell properties

A total of 32 per cent more estate agents reported a fall rather than a rise in house prices in August, compared to 8 per cent the previous month, according to the latest housing survey from the Royal Institution of Chartered Surveyors. That is the lowest reading since May 2009.

It comes amid a decline in the number of first-time buyers – a key component in maintaining values.

Stuart Allan, a RICS member from Bishop Auckland in Co. Durham, said: “There is a dearth of first-time buyers principally due to difficulties in obtaining mortgages and this has depressed the value of houses at the lower end of the market.

“These houses are typically selling for up to 10 per cent less than the estate agents advertised prices and this is reflected throughout the market.

“Vendors or property are required to be more realistic in their sale price expectations.”

Tom Goodley, a RICS member form Norfolk, said: “There appears to be a lot of over priced houses on the market, and a shortage of buyers. The basic economics of supply and demand must prevail.”

The share of the market occupied by first-time buyers dropped to 34 per cent in July, down from 38 per cent the previous month and the lowest proportion since the beginning of the credit crisis in August 2007, according to the Council of Mortgage Lenders.

First-time buyers are struggling to get on the property ladder as banks further tighten lending criteria.

These buyers have a typical deposit of 24 per cent of the value of their home, up from 21 per cent in April.

The CML also disclosed an increase in the number of loans approved to those buying a new home to 56,000 in July, up from 52,000 in June - although this remains significantly below long term averages.

Howard Archer, of economists Global Insight, said: “This mortgage data for July remains very low compared to long-term norms and does little to dilute suspicion that house prices will remain under pressure.

“It is also notable that mortgage approvals to first time buyers actually weakened in July, which suggests not only that they may be becoming more reluctant to move into the housing market in the current uncertain economic environment. It also suggests that first time buyers are finding it hard to get mortgages.”

Nicholas Leeming, of property website Zoopla.co.uk, said: “A crucial indicator of the health of the housing market is activity by first time buyers. The lack of attractive mortgage deals, combined with uncertainty around the economic impact of the government’s spending cuts affecting both lenders and borrowers, is seeing many frustrated first-time-buyers opt for renting in the short term.

“The mortgage market remains dominated by the cash-rich, with deposits on new homes increasing once again this month.”