Property prices in the UK have fallen annually by 4.7% in September, compared to a 4.5% drop in August, the Halifax house price index (HPI) has found.

Despite the substantial drop in annual prices, monthly property prices in September fell by 0.4%, following a 1.8% decrease in August.

The typical UK home now costs £278,601, which Halifax said is around the level seen in early 2022.

However, property prices are still up 1% since the initial base rate rise in December 2021, with average prices remaining more than £39,000 above pre-pandemic levels.

Director at Halifax Mortgages, Kim Kinnaird, said: “Activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales. Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability. Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.”

Personal finance analyst at Bestinvest, Alice Haine, added: “The housing market is expected to remain subdued into the next year as the drag effect from the Bank of England’s 14 interest rate hikes delivers a heavy blow to affordability levels. While some buyers have been forced to reduce the size and value of the home they purchase to afford mortgage repayments, others are abandoning moving plans altogether.

“There is some reason for optimism in the market, however. Mortgage rates have eased over the summer from their July peak with the average two-year fixed rate now below the 6.5% mark and the average five-year fixed rate nudging below 6% as interest rate expectations improve and lenders compete more aggressively for business.”

The HPI registered a decline in annual house prices across UK nations and English regions, with the South East of England recording a drop of 5.7% over the last year. The average house price in the region currently stands at £376,450.

Northern Ireland and Scotland recorded a modest annual decline, falling by -0.8% and 0.2% respectively. Wales saw annual house prices drop by -3.6%, with the average value of a property standing at £214,585 in September.

London remains the most expensive place in the UK to purchase a home, with the average price sitting at £525,678, despite falling by 4.8% year-on-year, equating to a cash fall of -£26,514.

Chief executive officer at Garrington Property Finders, Jonathan Hopper, concluded: “While many sellers are now being more realistic in setting their asking price, we’re still regularly seeing homes go for tens of thousands under asking as proceedable buyers press home their advantage.

“The big question now is how the easing of mortgage rate escalation might feed through into both prices and the number of sales. While no one is expecting mortgages to get significantly cheaper any time soon, fixed rate deals have come down from their recent highs and there’s a growing hope that the peak is past.

“Cash buyers remain in the strongest position, but affordability is slowly improving for mortgage-reliant buyers too as prices continue to fall.

“With wage growth still strong, improving affordability should pep up demand over coming months, even if every buyer will continue to need to factor in price risk and higher borrowing costs into what they’re prepared to pay.”

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