House prices fell month on month for the first time in 15 months in October, according to an index.
The 0.9 per cent drop marked the first monthly decline since July last year and was the biggest decrease since June 2020.
Annual house price growth also slowed sharply to 7.2 per cent in October, from 9.5 per cent in September, Nationwide Building Society said.
Across the UK, the average house price in October was £268,282 – and the housing market looks set to slow in the months ahead, the society added.
Robert Gardner, Nationwide's chief economist, said: "October saw a sharp slowdown in annual house price growth, to 7.2 per cent from 9.5 per cent in September.
"The market has undoubtedly been impacted by the turmoil following the mini-budget, which led to a sharp rise in market interest rates.
"Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation."
Mr Gardner added: "The market looks set to slow in the coming quarters.
"Inflation will remain high for some time yet and [the base rate] is likely to rise further as the Bank of England seeks to ensure demand in the economy slows to relieve domestic price pressures.
"The outlook is extremely uncertain, and much will depend on how the broader economy performs, but a relatively soft landing is still possible.
"Longer term borrowing costs have fallen back in recent weeks and may moderate further if investor sentiment continues to recover.
"Given the weak growth outlook, labour market conditions are likely to soften, but they are starting from a robust position, with unemployment at near 50-year lows.
"Moreover, household balance sheets appear in relatively good shape with significant protection from higher borrowing costs, at least for a period, with over 85 per cent of mortgage balances on fixed interest rates.
"Stretched housing affordability is also a reflection of underlying supply constraints, which should provide some support for prices."
Mr Gardner said running costs for less energy-efficient properties tended to be considerably higher, leaving these households particularly vulnerable to energy price rises.
Jeremy Leaf, a north London estate agent and a former residential chairman of the Royal Institution of Chartered Surveyors (Rics), said: "On the ground, new buyer inquiries almost dried up as uncertainty about the future direction of mortgage repayments added to cost-of-living concerns.
"Activity has slowly started to resume since as mortgage rates began to stabilise and are now starting to fall. Buyers are negotiating hard as they strive to take advantage of good mortgage offers, while prices continue to be supported by lack of stock."
Jonathan Hopper, chief executive of Garrington Property Finders, said: "Sellers who just months ago could take their pick of offers are now biting off the hand of a strong, proceedable buyer – even those asking for a price reduction."
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The fall in Nationwide's index in October – the first for 15 months and the sharpest since June 2020 – provides the strongest signal yet that house prices will buckle in the face of the surge in mortgage rates and the squeeze on real disposable incomes."
Tom Bill, head of UK residential research at estate agent Knight Frank, said: "Demand will come under more pressure next year as a growing number of people come to the end of fixed-rate deals and mortgage offers made earlier this year when rates were lower begin to lapse.”