This was the largest yearly decline since 2009 and was a steeper drop compared to the 2.5% annual decrease reported in July. However, this is in the context of house prices reaching a peak last summer. 

On a monthly basis, house prices dropped by 1.9% – around £5,000, which was the largest monthly fall since November 2022. Halifax said this brought prices back to the level they were at the start of last year. 

Compared to pre-pandemic values, average house prices are still around £40,000 higher. 

Kim Kinnaird, director at Halifax Mortgages, said: “It’s fair to say that house prices have proven more resilient than expected so far this year, despite higher interest rates weighing on buyer demand. However, there is always a lag effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices.

“Increased volatility month-to-month is also to be expected when activity levels are lower, though overall the pace of decline remains in line with our outlook for the year as a whole.” 

She added: “Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn’t surprising given the pace of mortgage rate increases over June and July. While these did ease last month, rates remain much higher compared to recent years.

“This may well have prompted prospective buyers to defer transactions in the hope of some stability, and greater clarity on the future direction of rates in the coming months. The market will continue to rebalance until it finds an equilibrium where buyers are comfortable with mortgage costs in a higher range than seen over the previous 15 years.” 

Kinnaird said Halifax did expect “further downward pressure on property prices” through to the end of this year and into the next.

This may come as some relief to those looking to get onto the property ladder.

“Income growth has remained strong over recent months, which has seen the house price to income ratio for first-time buyers fall from a peak of 5.8 in June last year to 5.1 now. This is the most affordable level since June 2020, and will be partially offsetting the impact of higher mortgage costs,” she added. 

A resilient North 

Halifax’s data showed that all the nations in the UK and the nine English regions reported an annual drop in house prices, but properties in the North were more resilient to market conditions. 

House prices in the South East fell 5% to £379,565 when compared to last year. 

Wales, which has seen some of the highest house price inflation since the pandemic, reported a 4.7% yearly drop in average prices to £212,967. 

House prices in Northern Ireland dropped 1.5% to £182,700, while in Scotland there was a 0.6% annual fall to £201,932. House prices in Scotland have reported the slowest pace of decline. 

While average house prices in London are still the most expensive in the UK, since last year values fell 4.1% to £529,814. In cash terms, this is a £22,777 decline. 

Worry for sellers 

Sarah Coles, head of personal finance at Hargreaves Lansdown, said it was a “miserable time to be selling your home” and a worrying time to be buying, with prices falling faster than any time for 14 years. 

She said it was unlikely to be the last of the price drops and questioned whether buyers should hold off on purchasing. 

Coles said: “The size of the drop is likely to worry buyers that they’re getting in ahead of more falls. The bad news is that they can expect the environment to remain tough. Mortgages are still sky high, buyer demand is still miserable, and sales still nowhere near where they were a year ago.  

“Right now, prices are only back where they were at the start of 2022, and they’re still £40,000 ahead of the level they hit before the start of the pandemic. Given how tough the backdrop is right now, the market has been incredibly resilient.” 

Iain McKenzie, CEO of The Guild of Property Professionals, said: “The continued demand for good quality housing is keeping house prices propped up, but affordability concerns and the slower rates of mortgage approvals are stopping growth.  

“The autumn months are usually still busy, as Brits look to hunker down in their new homes before the winter weather kicks in. It remains to be seen whether we will continue to see these sudden drops in house prices,” he added. 

Gareth Lewis, managing director of MT Finance, said: “It is natural that we will continue to see this downward trend around values, although it is not Armageddon as prices are still higher than they were pre-pandemic.”