House prices were largely unchanged in May, edging down by just £130 compared to April – but on an annual basis prices fell one per cent, marking the first time since 2012 that house prices have fallen year-on-year. 

According to the Halifax, the source of the data, the annual decline largely reflects a comparison with strong house prices this time last year, as the market continued to be buoyant heading into the summer.

Kim Kinnaird, director of Halifax Mortgages, says: “Property prices have now fallen by about £3,000 over the last 12 months and are down around £7,500 from the peak in August. But prices are still £5,000 up since the end of last year, and £25,000 above the level of two years ago. 

“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 five per cent 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. 

“One continued source of support to house prices is the labour market. While unemployment has recently ticked up from very low levels, brisk wage growth would over time help to improve housing affordability, if sustained.” 

Halifax has also looked at different groups of buyers. 

Prices remain under most pressure among home-movers (those with existing properties who sold and bought). Prices for this group fell 1.1 per cent in May, compared to ongoing marginal inflation for first-time buyers for whom prices 0.3 per cent. 

By property type, all except for detached houses (up 0.4 per cent) have registered year-on-year declines. The sharpest drop is for flats (down 1.9 per cent), followed by terraced (down 1.0 per cent) and semi-detached houses (down 0.5 per cent).