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A slowdown in the London and the south east housing market has pulled down the UK average, according to the Royal Institution of Chartered Surveyors (Rics).
A net balance of just one per cent of surveyors reported prices increasing instead of decreasing in July, down from seven per cent in June. This was the weakest reading Rics has recorded since March 2013.
Nearly 60 per cent of homes listed between £500,000 and £1m fetched sale prices lower than asking prices.
Meanwhile, just over a third said homes marketed at less than £500,000 were sold for less than their original asking price.
The surveryors blamed political uncertainty and the aftermath of tax changes for the lull in London's housing market.
Simon Rubinsohn, chief economist at Rics, said: "Sales activity in the housing market has been slipping in the recent months and the most worrying aspect of the latest survey is the suggestion that this could continue for some time to come.
"One reason for this is the recent series of tax changes but this is only part of the story. Lack of new build in the wake of the financial crisis is a more fundamental factor weighing on the market. And there are some very real consequences for the economy from all of this including the impact on the ability of people to be mobile when looking for work."
Berenberg’s senior UK economist, Kallum Pickering, said the housing market is the achilles' heel of the UK economy.
"Rising house prices in the 2000s, and risky lending practices, encouraged homeowners to withdraw equity to finance consumption. This extra demand fuelled the debt driven pre-Lehman upswing," Pickering warned.
"When the housing market corrected in 2008, falling property values caused a balance sheet crisis for homeowners, worsening the shock to demand and deepening the recession. While the post-Lehman upswing in the housing market has been far less vigorous than before, the underlying problems have not been fixed. And although it is just a tail risk, yet again, we need to pay close attention to the threat posed by a potential slump in the housing market."
