The Nationwide sought to reassure homeowners after releasing data that showed average UK house prices down by 2.5 per cent in May.  No separate data was available for Scotland.

Britain's largest building society pointed out that, although prices are now 4.4 per cent lower than a year ago, they are still 5.0 per cent higher than two years ago and 10 per cent higher than in May 2005.  Nationwide's Chief Economist, Fionnuala Earley, commented: "For most of those not wishing to move house or borrow money secured on it, the fall in value of their home is likely to be of limited concern in the short term".

The lender also said that homeowners are better placed to cope with weaker prices than they were in the early 1990s.  Earley said: "Current market conditions inevitably lead to comparisons with the last episode of falling prices. However there are a number of reasons to believe that today's borrowers are better placed to weather the storm than in the 1990s".

She attributed the improvement to three key factors.  Firstly, fewer homeowners have bought at the top of the market this time round.  This means that most current homeowners have experienced capital gains in the last few years that will insulate them from the effects of a downturn.

Second, most buyers are now putting down larger deposits despite increases in property prices.  The proportion of mortgages approved for house purchase (as opposed to re-mortgaging where loan to values ratios are lower) for more than 90 per cent of the property value has fallen from 44 per cent in 1988-89 to just 31 per cent last year.

Third, most homeowners are now opting for repayment mortgages rather than interest only alternatives.  This change, brought about in part by the decline in popularity of endowment policies, has the effect that owners reduce the amount they borrow as part of their repayments rather than leaving the amount of the debt static until the end of the mortgage period.

EDITOR'S NOTE
Something that was not included in the Nationwide report was the change in the number of transactions used to compile the results.  Given the substantial reduction in the number of property sales this year - estimated by some south of the border to be around 35 per cent - the data sample for the report this May will be a lot smaller than it was for the same month last year.  Smaller data samples tend to create more volatility in the results, so we might see wider fluctuations in results than has been the case in the past. 

Equally, the data provide information on selling prices, but price levels are only one indicator of market conditions.  In a slow market with few external pressures (such as unemployment and rising interest rates) to sell, there will be a significant proportion of homeowners who decide not to sell rather than accept an offer below a given price.  Buyers entering the market with expectations that they will be able to buy a home at a lower price may find that they have difficulty finding a seller because the price trends data  cannot take in to account the number of sales that did not go ahead because the seller decided not to accept a lower offer.