The Nationwide Building Society has said that house prices fell by 3.5% annually in June which follows a 3.4% decline in May.
Nationwide warned that an increase in “borrowing costs is likely to exert a significant drag” on the housing market.
Robert Gardner, Nationwide’s chief economist, said: “Longer term interest rates, which underpin mortgage pricing, have increased sharply in recent months, in response to data indicating that underlying inflation in the UK economy is not moderating as fast as expected.
“This has prompted investors to expect the Bank of England to increase its policy rate further and for it to remain higher for longer.
“Longer term borrowing costs have risen to levels similar to those prevailing in the wake of the mini-budget last year, but this has yet to have the same negative impact on sentiment.
“For example, the number of mortgage applications has not yet declined and indicators of consumer confidence have continued to improve, though they remain below long run averages.
“The sharp increase in borrowing costs is likely to exert a significant drag on housing market activity in the near term.”
Gardner added, “Moreover, despite the higher interest rates available to savers, the sharp rise in rents, together with continued high rates of inflation more generally is continuing to make it difficult for many prospective buyers to save for a deposit.
“A combination of healthy rates of income growth and modest price declines should improve affordability over time, especially if mortgage rates moderate.”