House prices fell by 1% over the past year — the first annual decline for 11 years — according to Halifax’s latest house price index. 

The figures from the UK’s largest mortgage lender show that average house price remained flat in May compared to April, but these figures give an annual decline of 1%, following a marginally positive 0.1% increase the month before. 

The last time Halifax recorded an annual fall in house prices was in December 2012, when there was just a 0.1% decline. 

These figures mean that the average property in the UK now costs £286,532, compared to £286,662 in April.

The regional figures show that house prices in the south of England remain under the greatest pressure, with the price of average property down by 1.6% in the South East, 1.4% in the South West, and 1.2% in Greater London.

Halifax says that Wales in the only region of the UK where house price growth hasn’t weakened in May, compared to April. House prices in the country are growing at 1.1% a year — unchanged from April.

The West Midlands was the best performing region, with property values showing a 2.7% increase over the year, followed by Yorkshire & Humberside, which saw 2.3% annual growth. 

In Scotland the annual growth now stands at 1.3% (down from 2.2% growth in April) while in Northern Ireland property prices are growing at 1.5% a year (down from 2.7% in April).

Halifax said that detached properties remain most resilient and continue to post modest house price growth, despite the prevailing downward trend. 

These data comes after figures from the Nationwide Building Society showed a more marked downturn in May. Its monthly house price index showed average property prices were down 3.4% over the year, the biggest decline for 14 years. 

Halifax mortgage director Kim Kinnaird says: “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.

“With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take Base Rate above 5% for the first time since the start of 2008. Those expectations have led fixed mortgage rates to start rising again across the market. 

“This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations, and latest industry figures for both mortgage approvals and completed transactions show demand is cooling. Therefore further downward pressure on house prices is still expected.”

But despite the gloomy outlook, Kinnaird said that the labour market was helping support house prices, with relatively low unemployment, and some signs of wage growth. Halifax added that while property prices had fallen by about £3,000 over the last 12 months — and are down around £7,500 from the peak in August — prices are still £5,000 up since the end of last year, and £25,000 above the level of two years ago. 

Mantra Group managing director Nimesh Sanghrajka says: “For the first time in over a decade, the UK housing market has experienced a decline on an annual basis as the slowdown in demand puts pressure on prices, pushing down the national average.

“Despite this, the consumer certainly won’t be viewing the current market as affordable. In real terms, the average price of a house in the UK only dropped by £130 in May versus the month before which is nothing to write home about.

“On top of that, would-be buyers are still being hit by soaring inflation meaning their spending power is much reduced and mortgage costs are at their highest since pre-2008 thanks to aggressive interest rate hikes as the Bank of England seeks to curtail inflation.

“With inflation stubbornly high, the Bank may decide to take the base rate above 5%, something we have not seen since the very start of the 2008, right in the middle of the financial crisis.

“Mortgage approvals and completed transactions show demand cooling across the market and if we see rates climb above 5% there will be even greater pressure on house prices which is a good thing for buyers in a market that has been artificially buoyed by tax breaks and a significant period of rock-bottom interest rates.”

SPF Private Client chief executive Mark Harris says: “Lenders continue to increase their mortgage rates, pulling products with little or no notice in response partly to funding costs and in response to what other lenders are doing. This will inevitably impact what buyers can afford and in some cases they may put decisions on hold until the situation improves.

“Swap rates, which underpin the pricing of fixed-rate mortgages, have settled since the inflation news sent them soaring. If this continues, we would expect mortgage pricing to also become less volatile.”

This combination of higher rates and falling prices is likely to deter borrowers and put further downward pressure on prices, according to MT Finance managing director Gareth Lewis. He says: “These numbers are unsurprising, given the fall in transactions. They also reflect that those who are willing to buy are less bullish when it comes to committing to higher house prices because everything is costing more, so the are going to chip away at the price.

“Mortgage borrowers on the whole, other than perhaps some first-time buyers, can still afford a mortgage but just have to be prepared to put their hand in their pocket a bit more. This is all part of what is essentially a re-education process; money isn’t free and you are going to have to pay more for it in future. The housing market will inevitably be quieter as a result.”

However some commentators pointed out that a more subdued housing market may create opportunities for some buyers. North London estate agent and a former RICS residential chairman, Jeremy Leaf, says: “Halifax, like the Nationwide figures, exclude cash sales and reflect activity from a few months ago. However, they do confirm recent trends that tentative market recovery is being threatened by the prospect of more interest rate rises and stubbornly high inflation.

“However, the survey shows prices are still considerably above where they were two years ago so cash and equity-rich buyers in particular are recognising the opportunities.”