House prices fell by 1.1% year-on-year in February, marking the first annual decline since June 2020, according to an index.
A 0.5% month-on-month price fall was also recorded, Nationwide Building Society said.
Across the UK, the average house price in February was £257,406.
Prices are now 3.7% lower than their August 2022 peak, and February’s negative annual price growth was the weakest seen since November 2012, Nationwide added.
Robert Gardner, Nationwide’s chief economist, said: “Annual house price growth slipped into negative territory for the first time since June 2020, with prices down 1.1% in February compared with the same month last year.
“Moreover, February saw a further monthly price fall – the sixth in a row – which leaves prices 3.7% below their August peak – after taking account of seasonal effects.
“The recent run of weak house price data began with the financial market turbulence in response to the mini-budget at the end of September last year. While financial market conditions normalised some time ago, housing market activity has remained subdued.
“This likely reflects the lingering impact on confidence as well as the cumulative impact of the financial pressures that have been weighing on households for some time.
“Indeed, inflation has continued to outpace wage growth and mortgage rates remain significantly higher than the lows recorded in 2021.”
Mr Gardner said it will be hard for the market to regain much momentum in the near-term, with the labour market widely expected to weaken as the economy shrinks in the quarters ahead, while mortgage rates remain above the lows seen in 2021.
He said: “Indeed, despite the modest fall in house prices, for a prospective first-time buyer earning the average income looking to buy the typical home, mortgage payments remain well above the long run average as a share of take-home pay.
“In addition, deposit requirements remain prohibitively high for many and saving for a deposit remains a struggle given the rising cost of living, especially for those in the private rented sector where rents have been rising strongly.
“However, conditions should gradually improve if inflation moderates in the coming months as expected, easing pressure on household budgets.
“Solid gains in nominal incomes together with weak or declining house prices will also support housing affordability, especially if mortgage rates edge lower in the coming months.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Swap rates, which underpin the pricing of fixed-rate mortgages, and have been falling since the turmoil created by the mini-budget in September, have taken a turn and moved the other way in the past couple of weeks on the back of expectations of further base rate rises.
“Subsequently, several lenders who launched sub-4% five-year fixed-rate mortgages have since increased these, with mortgage rates likely to be up and down in coming weeks.”
Tom Bill, head of UK residential research at estate agent Knight Frank, said: “While most of the economy has moved on from the mini-budget, the hangover is longer for the UK housing market. It has led to a mismatch between the most recent anecdotal evidence and the latest data.
“While last month saw the steepest annual house price decline in more than 10 years, activity has been solid so far this year as buyers and sellers adapt to higher mortgage rates.
“We expect transaction levels to fall from the heights of the pandemic and prices to decline by 5% this year but the UK housing market is far from being on its knees.”
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics said: “Looking ahead, we still expect house prices to fall over the coming months until they are about 8% below their peak.”
John O’Malley, director of Scotland-based estate agent O’Malley said: “Buyers are wary and many sellers are struggling to come to terms with the fact that their properties are no longer worth what they were six months ago.”
Sebastian Verity, head of research at London-based estate agent Chestertons, said: “As we are approaching spring, traditionally known as the busiest period in terms of property transactions, we are also expecting additional sellers to enter the market.”
Martin Beck, chief economic adviser to EY ITEM Club, said: “The EY ITEM Club thinks the fall in property prices still has some way to run. Although mortgage rates have dipped from post-mini-budget peaks, they’re still close to their highest in a decade.”
Jonathan Hopper, chief executive of Garrington Property Finders, said: “While mortgage rates have settled down and consumer confidence is recovering to a degree, things are still fragile and buyers are intensely price sensitive.”
Jason Tebb, CEO of property search website OnTheMarket.com said: “Buyers have less buying power, so vendors need to ensure properties are priced correctly by taking advice from an experienced local agent if they are serious about selling.”
