LONDON, July 7 Reuters British house prices fell last month in annual terms at the fastest rate in 12 years, mortgage lender Halifax said on Friday.

House prices dropped 2.6 yearonyear in June, after a 1.1 fall in May, Halifax said. It was the largest such fall since June 2011.

On the month, prices fell 0.1 after a 0.2 monthly drop in May.

Kim Kinnaird, director of Halifax Mortgages, said the large annual drop largely reflected the comparison from a peak in house prices seen around a year ago, with relatively little movement in prices over the last few months.

But she added that soaring mortgage costs spurred by rising expectations for Bank of England interest rates as it battles inflation pointed to weaker months ahead.

How deep or persistent the downturn in house prices will be remains hard to predict, Kinnaird said, adding that falling inflation could offer some support.

With markets now forecasting a peak in Bank Rate of over 6, the likelihood is that mortgage rates will remain higher for longer, and the squeeze on household finances will continue to put downward pressure on house prices over the coming year.

Reporting by Andy Bruce; Editing by Kate Holton

Source Reuters