House prices have dropped at their fastest rate in 12 years, according to the Halifax.

The High Street lender said on Friday that the annual fall of 2.6% was equal to around £7,500 being wiped off the average price of a home in the UK, which is the sharpest fall since 2011.

Prices for June fell for the third consecutive month, dipping 0.1%, the data showed, as the market continues to cool.

The average price of a residential property in the UK now stands at £285,932.

Halifax’s director of mortgages Kim Kinnaird said: “With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer supported by the temporary stamp duty cut.”

Industry reaction: 

Chris Druce, senior research analyst at Knight Frank, said: “The fear factor over just how high the Bank of England will push the bank rate to tame inflation continues to grip the UK property market.

“While deals continue to be struck, buyers remain nervous and extremely price sensitive. This won’t change materially until we have surety about how high borrowing costs will go.

“It means that despite a period of relative stability, house prices have further to travel on their downwards journey. More pain will enter the system in the second half of this year as an increasing amount of fixed-term mortgages are renewed at higher rates. We expect prices will fall by 10%, spread over the remainder of this year and next.

“When stability returns, demand could prove more resilient than expected given the cushioning effect of strong wage growth, record levels of housing equity, amassed lockdown savings, the availability of longer mortgage terms and forbearance from lenders.”

Iain McKenzie, CEO of The Guild of Property Professionals, commented: “The property market is showing resilience in the face of high interest rates, with only a slight fall in house prices compared to last month.

“The annual figure is a little more gloomy, but although this will be of little comfort to sellers, it is nothing we weren’t expecting. Prices had to start to come down, though they are still way above pre-pandemic levels.

“The South of England is seeing the greatest decline across the UK, but it’s worth bearing in mind that many parts of the South have become unaffordable for first-time buyers. Prices have become inflated well beyond typical mortgage offers, and a readjustment in the market has been on the horizon for a while.

“The key to maintaining stability and returning to growth is to restore confidence that now is still a good time to buy.

“Affordability is the greatest single barrier to that right now, as many buyers are rightly concerned about whether or not they can commit to a mortgage. Tackling inflation will help to alleviate those concerns.

“Demand for quality housing will always remain and this will help to keep prices buoyant. New-build properties popular among first-time buyers are in particularly high demand at the moment, pushing prices to increase annually.”

Nicky Stevenson, Managing Director at Fine & Country, said: “Mortgage rate rises are hitting buyer affordability and cooling house price growth as a result — but sensibly priced properties continue to attract high demand.

“Despite recent fluctuations in the average house price, overall prices are still up £4,000 over the year so far, which points to the resilience of the market even during tougher economic conditions.

“Buyer interest remains broadly on a par with 2019, which was a fairly typical year for the property market compared to the frenzy that followed, and demand continues to outpace supply in many places.

“The homes attracting the most interest and offers are those that look reasonably priced and take account of reduced household buying power.

“Buyers are also looking at properties where there is scope for negotiation, and the prospect of securing a good price on their next home is incentivising them to the market.

“The agreement between the banks and government that struggling mortgage-holders will be supported will play a big role in underpinning the strength of the housing market in the coming months. Preventing forced-selling and repossessions, combined with a strong labour market, should help give the property market a soft landing.”

Matt Thompson, head of sales at Chestertons, commented: “We are seeing more cash buyers but also house hunters who rather buy now before facing another potential hike in interest rates. This June, our branches conducted 20% more viewings than in June of last year. The capital’s high rents are another contributing factor to London’s continuous buyer interest. As tenants are facing rent increases, many are reviewing their situation and conclude that, despite higher interest rates, buying can still present a financially attractive option.”

Nathan Emerson, CEO of Propertymark, remarked: “It is inevitable that people’s finances are going to be impacted by rising interest rates, and there is a higher chance of a fall through in a sale due to the changes in buyers’ finances.

“However, serious buyers and sellers are rightly putting their confidence in the market and the majority are successfully and affordably moving home. Negotiations being made on properties are allowing wiggle room and bringing down the overall cost from the pandemic house price boom which was desperately needed as they were previously unrealistic and unsustainable.”

Jonathan Hopper, CEO of Garrington Property Finders, commented: “Only the weather was hot in June. The UK’s hottest June on record was decidedly cool on the property market.

“But this is far from the deep freeze many had feared. True, the average home is worth £7,500 less than it was at the same time last year. But it has also risen £4,000 since the start of 2023, according to the Halifax’s data.

“The surging cost of mortgages is having a chilling effect – but the impact is greatest on the number of homes being sold rather the prices people are paying for them.

“Nevertheless pricing behaviour is shifting. Some forward-thinking sellers are cutting their asking price pre-emptively to get ahead of the market, rather than slicing thousands off in response to a low offer.

“For many, this will be a bitter pill to swallow, albeit one that is preferable to the limbo of having their home sit unsold for months before they cut the price anyway.

“Meanwhile most buyers are being pragmatic and prudent rather than gung ho. Everyone is price sensitive and wary of overpaying, but we are seeing proceedable, cash-rich buyers focus less on how prices might move in the next month or two and more on how best to play their strong hand to secure a significant discount now.

“In some areas double-digit price reductions are not uncommon, with the regions that saw the frothiest excesses during the boom, as well as those with high levels of Help to Buy ownership, seeing the sharpest falls.”

Jason Tebb, Chief Executive Officer of OnTheMarket, added: “As the annual decline in average property prices continues, the high cost of living and potential for further rate rises are having an impact on how much buyers are willing and able to pay for their next home.

“However, given all the economic uncertainty it is remarkable how relatively stable the market appears to be following a period of unprecedented house price growth fuelled by shortage of new properties coming to the market.

“There are committed buyers who wish to move but they are also increasingly price sensitive. Motivated sellers must price sensibly in order to generate interest and ensure their expectations with regard to timeframes are met.”