UK house prices suffer worst annual drop in 12 years - Halifax

UK house prices fell in June at the steepest annual pace in 12 years as the mortgage crisis took its toll, according to figures released by Halifax on Friday.

Prices declined by 2.6% following a 1.1% fall in May. This was the worst drop since June 2011 and leaves the average price of a UK home at £285,932, versus a peak of £293,992 last August.

On the month, prices were down 0.1% in June following a 0.2% decline the month before.

Kim Kinnaird, director, Halifax Mortgages, said: "Concerns about persistent inflation have led to a significant increase in the cost of funding. Coupled with base rate rising by another 50bp, this contributed to a big jump in typical mortgage rates over the last month.

"The resulting squeeze on affordability will inevitably act as a brake on demand, as buyers consider what they can realistically afford to offer. While there’s always a lag effect when rates go up, many existing mortgage holders with variable deals or rolling off fixed rates will likely face an increase in the next year."

She continued: "How deep or persistent the downturn in house prices will be remains hard to predict. Consumer price inflation is likely to come down in the near term as energy and food prices look set to reverse their steep rises, but core inflation is clearly proving stickier than originally expected. With markets now forecasting a peak in Bank Rate of over 6%, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year."