House prices fell at the fastest annual rate seen in 12 years in June, according to the latest Halifax index.
Prices fell 2.6% over 12 months, equating to around £7,500 being wiped off the average UK house price.
It was the largest fall in house prices since 2011 and follows warnings that mortgage rates could hit 7% as the Bank of England base rate continues to rise.
On a month-on-month basis, property values dipped for the third month in a row, with an average decline of 0.1% in June.
The average UK house price now stands at £285,932, according to the index.
Halifax Mortgages director Kim Kinnaird said: “With very little movement in house prices over recent months, this rate of decline largely reflects the impact of historically high house prices last summer - annual growth peaked at 12.5% in June 2022 - supported by the temporary stamp duty cut.
“To some extent the annual growth figure also masks the fluctuations we’ve seen in the market over the past 12 months.
“Average house prices are actually up by 1.5% - around £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.
“These latest figures do suggest a degree of stability in the face of economic uncertainty, and the volume of mortgage applications held up well throughout June, particularly from first-time buyers.
“That said, the housing market remains sensitive to volatility in borrowing costs.”
The interest rates for average two and five-year fixed-rate mortgages on the market have recently topped 6%, according to Moneyfactscompare.co.uk.
Garrington Property Finders chief executive Jonathan Hopper said: “The surging cost of mortgages is having a chilling effect – but the impact is greatest on the number of homes being sold, rather the prices people are paying for them.
“Nevertheless, pricing behaviour is shifting. Some forward-thinking sellers are cutting their asking price pre-emptively to get ahead of the market, rather than slicing thousands off in response to a low offer.
“For many, this will be a bitter pill to swallow, albeit one that is preferable to the limbo of having their home sit unsold for months before they cut the price anyway.
“In some areas, double-digit price reductions are not uncommon, with the regions that saw the frothiest excesses during the boom, as well as those with high levels of Help to Buy ownership, seeing the sharpest falls.”
Adam Smith, founder at Northampton-based Alfa Mortgages, added: “As the Halifax observes, the immense strain being put on people’s finances will almost certainly send prices lower during the months ahead.
“Inflation is proving extremely stubborn, and the base rate is now expected to peak far higher than we thought a couple of months ago.
“However, the housing market could still experience a correction rather than a crash during the next 12 months due to the lack of supply and strength of the jobs market.”