House prices have fallen for the first time since 2012 according to the UK's largest mortgage lender as homeowners are warned of further rises.
The Halifax, part of Lloyds Banking Group said house prices have dropped by one per cent with prices in May down £3,000 compared to a year ago, and £7,500 lower than their peak in August.
The lender, which is also raising its mortgage rates, said higher borrowing costs were hitting "confidence".
Homeowners have seen their mortgage rates surge in recent weeks.
Homeowners have seen their mortgage rates surge in recent weeks as mortgage rates are expected to stay higher for longer than anticipated
PA
Lenders expect further rises in the Bank of England's base rate, staying higher for longer than previously anticipated.
Kim Kinnaird, director of mortgages at Halifax said demand was cooling and expects higher interest rates to put further downward pressure on house prices.
She said: "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."
The Halifax said that the average UK home now cost £286,532.
Britain's housing market had shown a recovery in early 2023 after a sharp rise in mortgage rates at the end of last year following former Prime Minister Liz Truss's economic agenda, which triggered financial chaos.
However, last month some mortgage lenders reduced or repriced their loan offers following a jump in bond yields after consumer price inflation came in at 8.7 per cent in April, above the consensus of 8.2 per cent.
Rival lender the Nationwide has recorded a steeper fall in house prices, according to its data.
Britain's housing market had shown a recovery in early 2023 after a sharp rise in mortgage rates at the end of last year following former Prime Minister Liz Truss's economic agenda
PA
Last week, it found that property values were down in the year to May by 3.4 per cent, the biggest decline for 14 years.
Kinnaird added: “With consumer price inflation remaining stubbornly high, markets are pricing in several more rate rises that would take Base Rate above 5pc 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.”
