UK house prices registered the first annual decline in more than a decade last month as prospective purchases were hit by higher mortgage rates, the latest Halifax data shows.

Property prices in May fell 1% year-on-year, the first annual fall since December 2012.

Earlier this month, the Bank of England revealed that the average rate for new mortgages rose to 4.5% in April, the highest since 2008. Markets expect the BoE to raise interest rates again at the next monetary policy meeting on 22 June, from 4.5% to 4.75%, and are pricing in a move above 5% by the end of the year., which is likely to place downward pressure on house prices, according to Kim Kinnaird, director at Halifax Mortgages.

“This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations,” he said.

Industry reactions:

Tom Bill, head of UK residential research at Knight Frank, said: “This is unlikely to be the last national house price index to fall into negative territory this year. Mortgage rates will keep edging up as wage growth keeps core inflation stubbornly high and we expect prices to fall by around 5% this year.

“However, this isn’t the global financial crisis part two for house prices and any decline will be kept in check by rising wages, low unemployment, cash sales, record-high levels of housing equity, longer mortgages and savings amassed during the pandemic. The UK housing market is coming back down to earth after a strong three years, not falling off a cliff.”

Nathan Emerson, CEO of Propertymark, the UK professional body for estate agents, said: “House prices are holding steady, and we are in a sturdy market. Propertymark data has found a 70% increase in properties available for sale compared to April 2022, showing confidence from sellers, and giving buyers more choice and room for negotiation.”

Iain McKenzie, CEO of The Guild of Property Professionals, remarked: “The slowdown in house price growth which we have seen in the first half of this year appears to be levelling off, with house prices remaining flat across most of the country.

“A fall in house prices in the South of England appears to be cancelling out the growth we have seen in the rest of the country. The South East in particular has seen the biggest annual drop in the past year.

“While growth in property prices currently remains static, we have not seen the dramatic correction many predicted. People need a roof over their head and the UK is not building enough homes, so there will always be demand.

“This price stability will be welcome news to sellers who may have been worried about their home losing significant value while they are trying to make a sale.

“Buyers should also be reassured that they won’t be missing out on a better deal if they choose to buy sooner rather than later.

“Deciding when is a good time to buy is largely dependent on the individual, their financial situation and their lifestyle, more than the market. If you are in a position to buy, the market is still busy and you may even find more flexibility on the asking price.”

Nicky Stevenson, MD at Fine & Country, said: “Flattening house price growth reflects the tougher conditions faced by the property market at the moment, though the promise of lower prices is helping to attract a steady stream of buyers seeking to negotiate a good deal on their next home.

“The three May bank holidays gave buyers a great opportunity to resume their property search, and they are benefiting from a market which gives them much more breathing room to carefully consider their options.

“Strengthening stock levels are also helping to drive demand as buyers have much more choice than they did last year.

“Homes are still selling well, though many at a lower price than seen over previous months, with agreed sales over the four weeks in May reaching their highest point so far this year, up 11% on the five-year average on the same period.

“However, the recent removal of some mortgage products ahead of another base rate review later this month suggests that there are still some hurdles to overcome.

“Although the higher interest rate environment has become an accepted new-normal, buyers will still be keeping a close eye on the next interest rate decision.”

Jason Tebb, CEO of OnTheMarket, commented: “With the first annual decline in prices for over a decade, it is clear that the high cost of living, recent disappointing inflation news and the likelihood of further rate rises will impact what buyers are willing to pay for their next home.

This news should be taken, however, in the context of the unprecedented post pandemic house price growth, fuelled by a lack of supply and pent up demand – property prices are still, on average, £25,000 above the level of 2 years ago.

Despite recent mortgage volatility, there will always be buyers who need, or want, to move and are committed to doing so. The advice of an expert local estate agent is essential in making sure that property sellers are pricing realistically to ensure that their expectations on timeframes are met – pricing too optimistically could mean lower levels of buyer interest in this price-sensitive market.”