UK house prices experienced the sharpest drop in the last 14 years because of the summer slump, and the high mortgage costs caused a drag on sales.

The latest data from Halifax, the largest mortgage lender, revealed the prices dropped by 4.6 percent in August, which was the largest year-on-year drop since 2009.

This signifies that the cost for a typical UK house has decreased by a significant amount of PS14,000 over the last 12 months, to PS279,569. This is the lowest price since the beginning of 2022. However, it remains PS40,000 higher than they were before the outbreak, when lockdowns increased demand for larger houses in the “race for space”.

The latest report of a decline, however, suggests that homeowners are being discouraged by the high interest rates that have been increased by policymakers in a bid to curb inflation, but also increased mortgage costs.

The Bank of England has increased rates of interest 14 times since December 2021 up to 5.25 percent, pushing the average rate on a two-year fixed-rate mortgage up to 6.67 percent, as per the most recent data from Moneyfacts.

Kim Kinnaird, director of Halifax Mortgages, said a normal slowdown in the buying of homes during the summer months has contributed to the slump last month. “Market activity slowed down in August. While there’s always a seasonal impact at this time of the year, it shouldn’t be unusual given the speed of the rate increase in the course of June and July.

“While they did improve this month, rates remain quite high compared to the past years. This may have caused prospective buyers to delay deals in anticipation of stability and more clarity about the direction rates will take in the months ahead.

“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 stated.

Halifax predicts another drop in the cost of property into the new year. Although the outlook isn’t likely to be well-received by existing homeowners, Kinnaird suggested it could be a blessing to those looking to get the ladder to homeownership as they have greater purchasing potential due to increasing wages.

“Income growth has been steady during the last few months, resulting in the ratio of income to house price for buyers who are first-time buyers decrease from a high that was 5.8 in June of last year to 5.1. This is the lowest amount since June 2020 and is likely to offset the effect of higher cost of mortgages” Kinnaird stated.

Andrew Bailey, governor of the Bank of England, said on Thursday that UK interest rates were approaching the top which suggests that the current rate hike cycle could soon come end. However, the Bank is expected to increase rates again during the next meeting of its policy committee on September 21 by one quarter of a percentage point to 5.5 percent.