Wales remains at to the top of the table for annual house price inflation, up by +16.1%, the strongest level of growth since early 2005, while London recorded its highest rate of annual price growth for six years at 8.8%.
Kim Kinnaird, director of Halifax Mortgages warned a challenging period is expected for the housing market.
Kinnaird said: “The slight fall seen in average house prices in July was offset by a return to growth during August – although the increase was relatively modest compared to the rapid inflation we’ve witnessed in recent times.
“Over the past year the rate of monthly house price inflation has averaged around 0.9%.
“While house prices have so far proved to be resilient in the face of growing economic uncertainty, industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity.
“Firstly, there is the considerable hit to people’s incomes from the cost-of-living squeeze. The 80% rise in the energy price cap for October will put more pressure on household finances, as will the further increases expected for January and April.
“At the levels being predicted, this is likely to constrain the amounts that prospective homebuyers can afford to borrow, on top of the adverse impact of higher energy prices on the wider economy.”
While government policy intervention may counter some of these impacts, Kinnaird warned that borrowing costs are also likely to continue to rise as the Bank of England is widely expected to continue raising interest rates into next year.
She added: “With house price to income affordability ratios already historically high, a more challenging period for house prices should be expected. However, this should be viewed in the context of the exceptional growth witnessed in recent years, with average house prices having increased by more than £30,000 over the last 12 months alone.”
Commenting on the data, Tom Bill, Head of UK Residential Research at Knight Frank said: “The supply of houses tightened over the summer as more people took a summer holiday for the first time in three years, which kept prices buoyant.
“We expect more properties to be listed in the coming weeks as we move from a seller’s towards a buyer’s market. Together with rising mortgage rates, this will increase downwards pressure on prices after they have appeared to defy gravity for so long.”
Nathan Emerson, chief executive of Propertymark, added: “Pre-pandemic seasonal trends are re-emerging as a summer lull continues within the market. However, buyer confidence remains strong pushing up the average time to sell to record breaking levels at over four months.
“The wider economic climate and rising energy costs have meant that buyers are negotiating harder and more and more buyers each month are starting to secure homes under the asking price.
“The number of properties coming the market is fairly static and interest rates remain at a historically low level despite recent rises so we anticipate that house prices will continue to slow in growth month on month but won’t drop significantly before the end of the year.”