The average UK house price fell by 1.4 per cent in November, the biggest drop since June 2020.
In annual terms, house price growth slowed to 4.4 per cent in November from 7.2 per cent in October, mortgage lender Nationwide said.
November’s drop followed a 0.9 per cent month-on-month fall in October. The average house price in Britain is now£263,788 ($320,000).
Nationwide said the fall-out from the September economic agenda of former prime minister Liz Truss ― which triggered a rise in interest rates ― continued to reverberate through the housing market.
"While financial market conditions have stabilised, interest rates for new mortgages remain elevated and the market has lost a significant degree of momentum," Nationwide chief economist Robert Gardner said.
Mr Gardner said longer term borrowing costs have fallen back in recent weeks and may moderate further.
“Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position with unemployment still near 50-year lows,” he said.
“Moreover, household balance sheets remain in good shape, with significant protection from higher borrowing costs, at least for a period, with about 85 per cent of mortgage balances on fixed interest rates."
The cost of a five-year fixed-rate mortgage fell below 6 per cent for the first time in almost seven weeks last month, providing a glimmer of hope for homebuyers.
But the two-year fixed-rate deal is still above 6 per cent, adding hundreds to the monthly cost of a mortgage.
Tom Bill, head of UK residential research at estate agent Knight Frank, said that the effect of the mini-budget continued to reverberate in November, with the largest monthly fall in house prices since the early days of the pandemic.
“Mortgage rates should keep edging downwards as the effects of the mini-budget wash through the system, which should settle the nerves of buyers and sellers, even as a 13-year period of ultra-low borrowing costs comes to an end", he said.
“We expect house prices to fall by 10 per cent over the next two years and the reality of higher rates will bite more after Christmas. Mortgage offers made before the mini-budget will begin to lapse and increase downwards pressure on prices from 2023.”
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors, said that strong employment and lack of supply meant that a steeper decline was avoided, despite continuing concerns over the rising cost of living and particularly mortgage repayments.
“The problem is not existing sales, the overwhelming majority of which are proceeding, but new business. However, some buyers are returning now that mortgage rates are beginning to fall but they are more aware of their stronger position so are negotiating hard.”
Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, said that she expected "a peak-to-trough" fall in house prices of about 8 per cent, about one third of the increase since the start of the pandemic.