By Suban Abdulla
LONDON (Reuters) -British house prices dropped on an annual basis in May for the first time in 11 years, mortgage lender Halifax said on Wednesday, as an increase in mortgage rates from the country's largest provider comes into effect.
The average property price fell 1.0% compared with May last year, the first year-on-year decline since December 2012, but in line with forecasts in a Reuters poll.
Prices were unchanged in monthly terms from April when they fell 0.4%.
Kim Kinnaird, director of mortgages at Halifax, said demand was cooling and expects higher interest rates to put further downward pressure on house prices.
"As expected the brief upturn we saw in the housing market in the first quarter of this year has faded, with the impact of higher interest rates gradually feeding through to household budgets, and in particular those with fixed rate mortgage deals coming to an end," Kinnaird said.
Britain's housing market had shown a recovery in early 2023 after a steep surge in mortgage rates at the end of last year following former Prime Minister Liz Truss's economic agenda, which triggered turmoil in financial markets.
However, some mortgage lenders last month reined in or repriced their loan offers following a jump in bond yields after consumer price inflation came in at 8.7% in April, above the consensus of 8.2%.
The stronger-than-expected inflation data raised markets bets that interest rates will peak at 5.5% later this year.
Analysts at Capital Economics said the upward revision in the bank rate could trigger a renewed downturn in Britain's housing market and potentially return mortgage rates to a similar peak as last autumn by the end of 2023.
Rival Nationwide last week reported a 0.5% month-on-month fall in house prices in April and a 2.7% annual decline.