Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“House prices were 0.9% lower than March 2011. A slowdown was to be expected, given the imminent expiry of the stamp duty holiday, which had provided a temporary boost to house prices in early 2012 as buyers brought forward purchases that would otherwise have taken place later in the year.
“This dampening effect on housing market activity and prices may fade over the course of the summer, especially if the wider economic outlook begins to improve and other policy measures, such as the Government’s NewBuy scheme are successful in supporting buyer demand.
“However, in our view the challenging economic backdrop is likely to continue to act as a drag, with house prices moving sideways or modestly lower over the next twelve months.
Weakness in March most likely reflects the end of the stamp duty holiday
"The removal of the stamp duty holiday for first time buyers purchasing a property up to the value of £250,000 was confirmed in the Budget. Around 180,000 first time buyers have benefited from the stamp duty holiday since its introduction in March 2010. However, it is difficult to assess the extent to which the policy provided a boost to the housing market, as we do not know how many purchases would not otherwise have taken place.
"Nevertheless, the reintroduction of stamp duty is likely to pose a further headwind to housing market activity in an already challenging environment. Based on our estimates, around 65% of first time buyers will pay stamp duty in the coming fiscal year, generating nearly £600m of tax revenue.
"In 2012-13, we estimate that around 100,000 first time buyers will pay stamp duty on properties between £125,000 and £250,000, adding an average of around £1,800 to purchase costs relative to the last fiscal year.
"The introduction of a 7% stamp duty threshold on properties purchased for over £2 million is also likely to have a dampening effect on activity, albeit a modest one, given the relatively small number of transactions involving properties over £2 million. In 2010 there were 4,000 such transactions, accounting for just 0.5% of total residential property transactions in the UK.
"Assuming a similar level of transactions in the years ahead implies that the 7% threshold will raise an extra £160m in tax revenue (assuming an average property price of £2m) and probably nearer £240m (assuming an average price of £3m). This is equivalent to 5% of the revenue raised in stamp duty last year, though this was depressed by the stamp duty holiday.
Policy needs to strike a delicate balance, supporting demand and housing supply
"The Government’s NewBuy scheme aims to boost demand for new build properties by reducing the deposit requirement. This offers the potential to boost housing demand, especially if implemented against the backdrop of an improving economic environment.
"However, if the aim is to support homeownership, it is important that policy efforts are effective in boosting housing supply as well – especially given current population trends. For example, official projections point to the number of new households in England rising to around 240,000 a year over the 2013 to 2023 period.
"Current rates of building activity are below what would be necessary to meet housing demand, if these population projections prove accurate. For example, 109,000 new dwellings were completed in England in 2011, less than half the volume required under this scenario.
"Similarly, even returning to the rate of building seen in the 10 years before the financial crisis, around 150,000 units a year, would still be below the required rate of construction. Hopefully the NewBuy scheme, along with other measures, such as a simplification of the planning system, will be successful in helping to boost the supply of housing in the years ahead."
Nicholas Ayre, director of UK buying agents, Home Fusion, said:
"The stamp duty hangover kicked in before the holiday had even ended. Prices rose by 0.6% in February to fall by 1% in March. That's a thumping headache. Will NewBuy be the paracetamol the property market needs?
"While the end of the stamp duty holiday doubtless contributed to the sharp decline in March, prices generally are being violently buffeted by the extreme shortage of stock. Annual prices are back in the red for the first time in six months but, hand on heart, that's probably where they belong.
"This week's downward revision in Q4 GDP drives home that the economy is still treading on very thin ice. It's a fair assessment that overall prices will move sideways and modestly lower over the course of the next year. But as ever, certain areas will defy economic conditions and prove robust, while other areas will go into freefall."
