UK house prices recorded their biggest annual fall in three years in October, according to the latest index from Lloyds.
The average property value dropped by 1.2% year on year, marking the steepest annual decrease since October 2023. The average price in October stood at £296,285, a fall of £1,882, or 0.6%, compared with September.
Economic pressures weigh on demand
Andrew Asaam, mortgages director at Lloyds, said: "Housing demand is currently being tested by a challenging economic backdrop."
He noted that renewed inflationary pressures, driven in part by the conflict in the Middle East, are keeping borrowing costs high and adding to the squeeze on household finances, making some buyers more cautious. However, he said October's fall should be seen in context, as house prices have changed relatively little over the past couple of years while the market adjusted to higher interest rates.
"Looking ahead, conditions are likely to remain subdued in the near term, but we don't expect this to lead to a sustained period of falling house prices," Asaam added, noting that wages are rising faster than property prices, which should gradually narrow the gap between earnings and house prices.
Bank of England rate rise
On Thursday, the Bank of England base rate increased by 0.25 percentage points to 4%, the first rise in interest rates in more than three years. Based on typical outstanding mortgage balances, UK Finance said the increase for homeowners on tracker deals would be £30.72 on average.
Around nine in 10 (87%) outstanding homeowner mortgages are fixed rates, and some 2.3 million fixed-rate deals are due to expire in 2027, according to UK Finance analysis.
Nathan Emerson, chief executive of property professionals' body Propertymark, said: "Renewed inflationary concerns and yesterday's increase in the base rate will continue to weigh on consumer confidence, particularly as households remain mindful of the cost of living."
Karen Noye, a mortgage expert at wealth manager Quilter, said: "The housing market increasingly feels like it is running up the down escalator." She said buyers are still moving forward but every step is becoming harder work, which helps explain why activity remains subdued despite a resilient labour market and rising wages.
Industry reaction and regional trends
Andrew Montlake, chief executive of Coreco mortgage brokers, said: "A quieter market can create more room to negotiate, but the real issue remains the cost of borrowing rather than whether a property is 1% cheaper than it was last year." He added that homes priced sensibly can still sell, but aspirational pricing is becoming harder to sustain.
Nicky Stevenson, managing director of Fine & Country, said: "A cooling market should not be mistaken for a lack of activity." She said buyers are still motivated to move but are taking a more considered approach to their finances and long-term affordability.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the base rate rise "may focus the minds of those remortgaging," adding that shorter fixed-rate deals and extended mortgage terms may be two ways borrowers can manage monthly payments, but seeking advice will be crucial.
David Hollingworth, associate director at L&C Mortgages, said: "The drop in prices will do nothing to cheer homeowners and subdued house price inflation figures look likely to be a regular fixture in coming months." He noted that mortgage rates have risen substantially since the outbreak of the Iran war, as fixed rates reflected the market view that interest rates would need to rise. He added that some first-time buyers may find they have less competition and will have time to consider their options and potentially negotiate a little harder.
Iain McKenzie, chief executive of The Guild of Property Professionals, said: "The latest figures should serve as a wake-up call for sellers who are still pricing their homes based on what they might have achieved at the height of the market." He said buyers have more choice, borrowing costs are squeezing budgets, and overpriced properties are finding it increasingly difficult to attract serious interest.
Sarah Coles, head of personal finance at AJ Bell, said: "The market has succumbed to gravity. Higher mortgage rates, a glut of homes on the market and a dearth of buyers have taken their toll." She added that variable rates rose again after yesterday's Bank of England rate hike and are vulnerable to more rises as we head into 2027.
Regional price changes
According to Lloyds, regional annual change figures are based on the most recent three months of approved mortgage transaction data. Average house prices and annual changes were as follows: East Midlands £244,426 (minus 0.3%), Eastern England £327,241 (minus 2.3%), London £524,892 (minus 3.1%), North East £184,318 (2.0%), North West £249,916 (2.2%), Northern Ireland £228,708 (4.4%), Scotland £222,667 (2.8%), South East £379,258 (minus 2.4%), South West £298,057 (minus 2.4%), Wales £233,116 (1.6%), West Midlands £261,656 (0.3%), and Yorkshire and the Humber £214,485 (minus 1.0%).
