UK house price growth is slowing. While prices rose 1.2% in June compared to last year, this is down on May’s 1.9% growth, according to property website Zoopla. Its house price index – which forecasts a 5% fall in house prices this year – also shows that 42% of sellers are now accepting offers of more than 5% below asking price, the highest level since 2018.

This may be seen as a positive for first-time buyers who have been subject to steadily rising prices in recent years. But the Bank of England’s decision to crank up interest rates to combat inflation over the past year means that mortgage costs have been rising. This is squeezing people’s affordability and offsetting some of the relief over falling prices. Indeed, mortgage borrowing has reached the lowest level on record (excluding the period since the onset of the COVID pandemic), according to Bank of England data.

And still, inflation remains “sticky”. Although UK consumer price inflation slowed in April, it was higher than expected at 8.7% and it remained at this rate in May. More interest rate increases are expected to curb price growth and many lenders have been raising their mortgage interest rates in anticipation, which drags down demand for housing.

As long as inflation remains high, financial markets will expect more base rate increases. This would almost certainly force further declines in UK house prices, with significant implications for all of our finances, because the health of the housing market affects the wider economy and financial stability.

Here are five ways falling house prices affect the economy: