UK house prices fell for the fourth time in five months in July, with prices falling by 0.7%, according to the latest house price index from the Nationwide Building Society.

This pushed the annual pace of price growth down to -2.6%, from -1.5% in June, the weakest outturn since August 2009.

The average price of a home (not seasonally adjusted) is now £164,389.

“The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy,” said Robert Gardner, Nationwide’s chief economist.

“Data released last week revealed that the UK recession intensified in the three months to July, with the economy contracting by 0.7% q/q. This disappointing outturn can be only partly explained by unusually wet weather and the impact of an extra bank holiday during the quarter.

“Indeed, the UK economy has contracted by 1.4% over the past nine months, and is now 4.5 percentage points smaller than it was in Q1 2008.”

Peter Rollings, CEO of estate agent Marsh & Parsons, added: “National house prices are mirroring the plight of the economy, and it is only a shortage of properties available that is preventing larger falls in many parts of the country. Mortgage lending figures are still heading south, and lenders’ conservatism is being felt most keenly by first-time buyers. This is keeping the lower tiers of the housing market sedated, removing the bottom-up impetus needed to drive a recovery in prices outside of London.

“It’s not yet clear whether the funding for lending scheme will serve as a much needed shot of adrenaline for the housing market. The prospect of the scheme has already triggered a wave of incredibly cheap rates for the equity rich, and those with substantial deposits are reaping the benefit. If we see these cheaper rates applied to higher loan to value mortgages following the scheme’s launch, we could see a bounce in first-time buyer figures, buoying sales activity in the second half of the year.”