House prices start to fall as recession looms over the property market

House prices have started to fall as the cost of living crisis and higher interest rates take their toll on the property market.

The average house price fell £365, or 0.1pc, in value over the last month after years of high growth, as experts have warned the property market has reached a tipping point, figures from Halifax, the bank, have shown. House prices could fall by up to 10pc over the next year, according to industry forecasts.

The annual rate of growth slowed from 12.5pc to 11.8pc between June and July. The average home costs £293,221, according to Halifax.

The Bank of England raised the Bank Rate for the sixth time in a row, from 1.25pc to 1.75pc to combat runaway inflation on Thursday, in the fastest rise since 1995. This has triggered another increase in mortgage costs for millions of borrowers on variable installment mortgages.

Russell Galley, of Halifax, said he expected house prices to come under more pressure in the months to come as rising interest rates and the soaring cost of living damage household finances.

“Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios,” he said.

Wales recorded the strongest house price inflation of any British region or nation, with annual growth of 14.7pc taking the average cost of a home to £222,639, according to Halifax. In England, homes in the South West had the largest rises, with growth of 14.3pc to hit an average price of £310,846.

Prices of bigger homes, including detached houses, have risen more than twice as fast as the price of flats in a shift in demand towards bigger properties, rising by 15.1pc and 7.7pc, respectively, according to Halifax.

Graham Cox, of mortgage broker SelfEmployedMortgageHub, warned mortgage rates could rise to 5pc by the end of the year, which would be “catastrophic” for anyone coming off a fixed rate deal.

“I believe prices are about to fall, and quickly, possibly by between 5pc and 10pc over the next 12 months,” he said.

Alice Haine, of broker Bestinvest, said it was only a matter of time before rising prices and a troubled economy harmed the property market.

“Once a recession digs in, then the threat of job losses will raise its ugly head – damaging buyer confidence and dampening the market in the process,” she added.

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