UK house prices post biggest annual drop since 2011: Halifax

LONDON, July 7 (Reuters) – British house prices fell last month on an annual basis at the fastest pace in 12 years and rising interest rates are likely to herald further weakness in the property market, the Halifax mortgage lender said Friday.

House prices fell 2.6% year-on-year in June, after a 1.1% drop in May, Halifax said. It was the biggest such drop since June 2011.

For the month, prices fell 0.1% after a 0.2% monthly drop in May.

Kim Kinnaird, director of Halifax Mortgages, said the large year-over-year drop mirrors comparison to a spike in home prices seen about a year ago, with relatively little movement in prices in recent months.

But skyrocketing mortgage costs, buoyed by rising Bank of England interest rate expectations as it battles inflation, point to weaker months ahead.

“It remains difficult to predict how deep or persistent the decline in house prices will be,” Kinnaird said, adding that falling inflation could offer some support.

“With markets now forecasting a bank rate spike of over 6%, mortgage rates will most likely stay higher for longer and the squeeze on household finances will continue.”

Investors bet on Thursday that stubborn inflation would force the Bank of England to raise interest rates to a 25-year high of 6.5% by December.

Lenders, including Lloyds Bank (LLOY.L) the Halifax subsidiary and other street names have repeatedly reassessed home loan offers in recent weeks in a struggle to keep up with rising financing costs.

History suggests that housing market activity is likely to slow sharply.

Big increases in exchange rates, which underpin mortgage financing costs, often precede big drops in home starts, according to a Reuters analysis of the past 35 years.

Halifax said the drop in house prices was greatest in south-east England. In London, prices fell in annual terms by 2.6%, the biggest drop since October 2009.

Reporting by Andy Bruce; Edited by Kate Holton

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