Property prices increased by 0.3 per cent in February although the market is still ‘treading water’, according to figures from Nationwide.

Despite the month-on-month increase, the building society reported a year-on-year slowdown, with prices 0.1 per cent lower than in February last year.

Nationwide’s chief economist Robert Gardner believes the deceleration of prices is linked to wider economic prospects.

‘Given that the recovery hit a soft patch at the turn of the year and looks set to remain sluggish in the year ahead, the property market is likely to follow suit, with relatively low transaction levels and prices moving sideways or modestly lower through 2011,’ he comments. 

Added to this, demand for homes has ‘levelled out’, whilst low interest rates also contribute to the slowdown. Gardner adds: ‘The continued uncertain outlook for the economy is likely to keep many potential buyers on the sidelines for some time yet.’  

The uncertain outlook is taking its toll on first-time buyers. Numbers are still well below the levels before the financial crisis, casting a ‘shadow’ over the outlook for the property market, according to the report.

However, first-time buyers have accounted for 37 per cent of house purchases in recent months – which is only 3 per cent lower than the pre-financial crisis levels of 2007. 

Despite this, first-time buyers are facing strong headwinds when getting a foot on the property ladder. ‘First-time buyers tend to be younger, and labour market conditions for younger people have been more difficult,’ comments Gardner.

Being able to afford a property is a major constraint on potential buyers. ‘Mortgage lenders have become more conservative – a shift that has a greater impact on those taking their first steps into the housing market,’ adds Gardner.

‘For an average worker earning an average salary saving 15 per cent of take home pay, it would take eight years to put down a typical deposit to buy the average house.’

Nicholas Ayre, a director of buying agents Home Fusion, finds the property market ‘unsure’, saying: ‘The marginal increases and decreases we are seeing from month to month reflect a market unsure of its buoyancy.’

He believes the spike in unemployment for 18 to 24 year olds will ‘raise questions about the longer-term prospects for the property market’, as this group plays a crucial role in the market.

Ayre adds: ‘Increasingly, people are questioning whether now is the best time to buy and this, coupled with the still difficult borrowing conditions, is stopping the property market in its tracks.’