House prices have fallen at the greatest annual rate in more than 10 years, according to the Halifax house price index.

The mortgage lender said prices fell 2.6% in the year up to June – the largest year-on-year decrease since June 2011 – equivalent to a £7,500 cut in the average house price.

A typical property now costs £285,932, down from a peak of £293,992 last August.

Experts think the cost of living crisis will continue to push house prices down, despite an increase so far this year.

But this won’t translate to an easier market for first-time buyers, because of the increasing pressure on mortgage rates.

The cost of property fell fastest in the south of England as overall prices fell for the third month in a row.

Elsewhere across the country, prices rose in the West Midlands (by 1.5%), Yorkshire & Humberside (0.2%) and Northern Ireland (0.2%).

While the yearly decrease was significant, the monthly decrease was small. Just a 0.1% contraction was recorded.

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The significant annual drop has more to do with “historically high” prices last summer than recent movements in the market, according to experts.

Price growth hit 12.5% in June 2022 when stamp duty was temporarily cut.

As a result, any fall in house prices will appear steep when compared to how expensive buying a property became last summer.

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“To some extent the annual growth figure also masks the fluctuations we’ve seen in the market over the past 12 months,” said Kim Kinnaird, the director at Halifax Mortgages.

She added: “Average house prices are actually up by 1.5% (£4,000) so far this year, with most of that growth coming in the first quarter, following the sharp fall in prices we saw at the end of last year in the aftermath of the mini-budget.”

Despite the fall in mortgages products on the market and rising mortgage rates, Halifax said the number of mortgage applications “held up well” in June, particularly from first-time buyers.

But Ms Kinnaird said the market is sensitive to the “volatility” in borrowing costs as the Bank of England is now expected, by some forecasters, to raise the base interest rate above 6%.

The Monetary Policy Committee of the Bank of England has been persistently increasing rates to make borrowing more expensive and dampen economic activity in an effort to bring down stubbornly high inflation.

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The effect of such an increase in the base interest rate will be that mortgage costs will remain higher for longer “and the squeeze on household finances will continue to put downward pressure on house prices over the coming year,” Ms Kinnaird said.

“How deep or persistent the downturn in house prices will be remains hard to predict,” she added.

Chris Druce, senior research analyst at estate agent Knight Frank, added: “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.”

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