The number of houses sold in the UK this year is on track to be the lowest since 2012, according to property website, Zoopla.
Around one million sales are set to be completed this year, with transactions almost a fifth lower than in 2022.
The cost of mortgages and rents have risen sharply since banks started increasing rates on lending.
Houses bought with cash, where buyers are not relying on a mortgage, are expected to hold up relatively well.
Existing homeowners using a mortgage to buy a house typically account for a third of annual sales.
According to Zoopla, those buyers are now more likely to wait until the outlook for rates becomes more favourable, despite property prices falling in some parts of the UK.
New figures released by the Bank of England on Wednesday show that UK mortgage approvals fell almost 10% in July as prospective buyers found affordability checks increasingly challenging
Net mortgage approvals fell from 54,600 in June to 49,400 in July, while approvals for remortgages increased slightly in the same period.
The average rate on a two-year fixed mortgage deal is 6.74%, according to the financial information service Moneyfacts. The typical rate for a longer five-year deal is 6.22%.
Mortgage costs are much higher now than the ultra-low rates of less than 2% many homeowners enjoyed in previous years.
The Bank of England has increased its benchmark rate 14 times in a row to reach its current level of 5.25% as it seeks to slow soaring prices.
Zoopla said sales of smaller, more affordable properties have not been hit as badly as transactions involving three and four-bedroom homes.
New purchases of buy-to-let homes have also been squeezed by higher mortgage rates.
The cost of rent has risen sharply against a backdrop of more costly mortgages, with many tenants struggling to find affordable housing as landlords increase rents to cover their higher costs.
Richard Donnell, executive director at Zoopla, said: “Prices are falling more in southern England, where higher mortgage rates have priced more people out of the housing market, weakening demand.
“While UK house prices are 0.1% higher over the year, it is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage-reliant buyers,” he said, adding that rates need to fall below 5% if the market is to see an “increased appetite to move home” by the end of the year.
According to data from the Building Society Halifiax, for all buyers, London has the least affordable homes, priced at 9.3 times average earnings, with mortgage repayments taking up 49% of earnings.
The North East of England, with properties priced at 4.9 times average earnings, and Scotland, with houses priced at five times average earnings, have the most affordable homes. Inverclyde – where homes cost 2.9 times average earnings – is recorded as having the most affordable homes of any local authority area, the Halifax said.
Jackie Quinn, an estate agent in Surrey, told the BBC’s Wake Up To Money programme that she had seen house prices drop over the past six months, but added things were changing as the summer holidays come to an end.
But she was “very much in a bubble” in the area she works in, which includes places such as Epsom, Leatherhead and Ashtead.
“We have had lots of people moving out of London since the pandemic, obviously with the changes in working pattern they have been able to sell up their expensive flats in London and buy a much bigger home here in the suburbs,” she added.
But she said there were some deals falling through as a result of higher mortgage repayments, with people seeing deals “going up four or five times than what they were expecting when rates were lower”.
Ms Quinn added she had noticed some people were downsizing as a result of higher interest rates.
