UK house prices have experienced a drop for the fourth consecutive month, as reported by the Halifax. This is largely due to increased borrowing costs leading first-time buyers to opt for smaller homes.

The average house price in the UK saw a decrease of 0.3% in July. The average house now costs £285,044, down from the previous peak of £293,992 in August last year. Despite this downward trend, the lender notes an easing in the annual rate of this decline. In comparison to the same time last year, property prices fell by 2.4% last month, a slight decrease from the 2.6% fall experienced in June.

However, it’s not all doom and gloom. Halifax points out that the housing market is showing resilience despite difficult economic conditions. First-time buyers are still active in the market, though some are shifting their preferences towards smaller homes to balance the higher borrowing costs.

The buy-to-let sector is feeling the squeeze too, as the combination of increased interest rates and new rental market reforms are making it harder for landlords to operate profitably.

Southern England and Wales are seeing the most pressure on property prices, with a notable exception in the West Midlands, where prices have remained stable. Kim Kinnaird, Director at Halifax Mortgages, predicts that house prices will continue to fall into next year, though she anticipates a gradual, rather than a steep, decline.

However, it’s worth remembering that even with these drops, average house prices are still significantly higher than they were before the Covid pandemic – around £45,000, or 19%, above those levels.