The UK's biggest mortgage lender says rising borrowing costs are affecting confidence.
House prices have fallen by 1% compared with a year ago - the first such drop since 2012, according to the UK 's largest mortgage lender.
The Halifax, part of Lloyds Banking Group, said typical house prices in May were down £3,000 on a year ago, and £7,500 lower than their peak in August.
The lender, which itself is raising its mortgage rates, said higher borrowing costs were hitting "confidence".
Some mortgage rates have risen sharply in recent weeks.
Lenders are predicting further rises in the Bank of England's base rate, owing to general price rises - as measured by inflation - staying higher for longer than previously anticipated.
"This will inevitably impact confidence in the housing market as both buyers and sellers adjust their expectations," said Kim Kinnaird, director of Halifax Mortgages, who added that housing demand was cooling.
"Therefore further downward pressure on house prices is still expected."
The Halifax said that the average UK home now cost £286,532.
Rival lender the Nationwide has recorded a deeper fall in house prices, according to its data. It said a week ago that property values were down in the year to May by 3.4%, the biggest decline for 14 years.