(Bloomberg) -- UK house price growth slowed sharply to its joint-weakest pace in more than a decade after the summer surge in mortgage rates, official data show.

Average prices edged up 0.6% in the 12 months to July to £290,000 ($358,630), a marked slowdown from 1.9% growth the previous month, according to the Office for National Statistics. 

The fall came after mortgage rates surged to a 15-year high in July as traders ramped up their bets on the Bank of England boosting interest rates to stamp out inflation. 

It was the weakest annual increase since the pandemic struck and joint-worst since 2012, though still beat economists’ expectations of no growth. Prices were up 0.5% on the previous month.

The figures suggest that higher interest rates are stretching affordability and taking the heat out of the market but are still not causing a crash in prices. Lenders and economists believe that prices are roughly halfway through their slump, with more forward-looking surveys pointing to further weakness ahead despite a recent easing in home-loan rates.

The average house price has fallen £2,363, or 0.8%, from the peak in November after surging during the pandemic. Annual price growth has turned negative in South West England, Wales and London, where they have fallen 0.8%.

“The renewed jump in mortgage rates started to depress prices in July,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics. 

“Consumers’ confidence is still very weak by past standards and expectations of further house price falls remain entrenched. On balance, then, we expect a peak-to-trough fall of around 6%, with the nadir coming at the end of the year.”

Separate data from the ONS showed that tenants are also feeling the squeeze as landlords pass on higher borrowing costs and demand for rented accommodation grows. 

Private rental prices climbed by 5.5% in August compared to a year earlier, up from growth of 5.3% in July. It was the largest increase since records began in 2016.

Rents in London, where tenants are facing a severe mismatch between supply and demand, jumped 5.9%, the fastest since 2006 when the data started.

©2023 Bloomberg L.P.