UK house prices post first annual drop since 2012, says Halifax

British house prices dropped on an annual basis in May for the first time in 11 years, and pressure on prospective buyers from higher mortgage rates could deepen the downturn, mortgage lender Halifax said on Wednesday.

The average property price fell 1.0 per cent compared with May last year, the first year-on-year decline since December 2012, in line with forecasts in a Reuters poll.

Prices were unchanged in monthly terms from April when they fell 0.4 per cent.

Kim Kinnaird, director of mortgages at Halifax, said demand was weakening and higher interest rates were likely to increase pressure on house prices.

Britain’s housing market recovered early this year after mortgage rates surged late last year in response to former Prime Minister Liz Truss’s announcement of unfunded tax cuts, which triggered turmoil in financial markets.

“As expected, the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end,” Kinnaird said.

Some mortgage lenders last month reduced or repriced their loan offers after bond yields jumped when consumer price inflation came in at 8.7 per cent in April, above the consensus of 8.2 per cent.

Halifax, part of Lloyds Banking Group (LLOY.L), on Tuesday said it would raise interest rates for its fixed home loans from Wednesday.

“The mortgage affordability squeeze not only impacts the dreams of aspiring home-owners but also reverberates throughout the housing market,” Myron Jobson, senior personal finance analyst at Interactive Investor said.

The stronger-than-expected inflation data raised markets’ bets interest rates will peak at 5.5 per cent later this year.

Analysts at Capital Economics said higher rates could trigger a renewed downturn in Britain’s housing market and drive mortgage rates back to last autumn’s peak by the end of this year.

Nationwide, another lender, last week reported a steeper 0.5 per cent month-on-month drop in house prices in April and a 3.4 per cent annual decline – the biggest drop since 2009.