According to mortgage lender Halifax, UK house prices witnessed a significant decline last month on an annual basis, marking the fastest rate of decrease in 12 years.

The rising interest rates are expected to exacerbate the challenges faced by the housing market. Halifax reported a year-on-year drop of 2.6 per cent in house prices for June, following a 1.1 per cent decrease in May. This decline represents the largest fall since June 2011. On a monthly basis, prices dropped by 0.1 per cent in June, following a 0.2 per cent decrease in May.

Kim Kinnaird, the director of Halifax Mortgages, explained that the substantial annual decline can be attributed to the comparison with the peak in house prices observed around a year ago, coupled with relatively minimal price movements in recent months.

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However, the surge in mortgage costs driven by mounting expectations for the Bank of England to combat inflation through increased interest rates suggests that the housing market will face further challenges in the coming months.

Kinnaird stated that predicting the depth and duration of the downturn in house prices remains challenging, but the possibility of decreasing inflation may provide some support. Kinnaird also noted that the anticipation of a peak Bank Rate exceeding 6 per cent in the foreseeable future implies that mortgage rates will likely remain elevated for an extended period, contributing to ongoing financial strain for households.

Investors have recently speculated that persistent inflation will prompt the Bank of England to raise interest rates to their highest level in 25 years, reaching 6.5 per cent by December. In response to soaring funding costs, various lenders, including Halifax, a subsidiary of Lloyds Bank, and other prominent institutions, have repeatedly adjusted their home loan offerings in a race to keep pace.

Historical data indicates that significant increases in swap rates, which influence mortgage funding expenses, often foreshadow substantial declines in housing starts. This conclusion is supported by a Reuters analysis covering the past 35 years.

Halifax highlighted that the largest decrease in house prices occurred in the southeast of England. London experienced a decline of 2.6 per cent in annual terms, marking the most substantial drop since October 2009.