Lloyds records biggest annual fall in UK house prices in three years

UK house prices recorded their biggest annual fall in three years in October, according to an index.The average property value fell by 1.2% annually, marking the steepest decrease since October 2023, Lloyds said.The average property price in October is £296,285, marking a £1,882 or 0.6% fall compared with September.Andrew Asaam , mortgages director at Lloyds, said: “Housing demand is currently being tested by a challenging economic backdrop.“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 understandably more cautious.“However, it’s important to put October’s fall in context.“House prices have changed relatively little over the past couple of years, as the market has gradually adjusted to higher interest rates.“The recent rise in energy and other household costs has added to the pressure on buyers, so some adjustment in prices is not surprising.“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.“With wages continuing to rise faster than property prices, the gap between earnings and house prices should gradually narrow, helping affordability to improve over time.”On Thursday, the Bank of England base rate increased by 0.25 percentage points to 4%, in the first rise in interest rates in more than three years.Read MoreBased 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.Some 2.3 million fixed-rate deals are due to expire in 2027, according to the analysis by UK Finance.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.“Buyers are still moving forward, but every step is becoming harder work.“That helps explain why activity remains subdued despite a resilient labour market and rising wages.“Buyers are being asked to make one of the biggest financial decisions of their lives at a time when the outlook for borrowing costs remains uncertain.”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.“For sellers, realism is crucial.“Homes that are 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.“Buyers are still motivated to move, but they are taking a more considered approach to their finances and long-term affordability.“Understanding what they can comfortably borrow, with guidance from a qualified mortgage professional, is particularly important in the current climate.”Mark Harris, chief executive of mortgage broker SPF Private Clients, said the base rate rise “may focus the minds of those remortgaging” adding: “Shorter fixed-rate deals and extended mortgage terms may be two ways in which borrowers can manage their 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.“Mortgage rates have risen substantially since the outbreak of the Iran war, as fixed rates have reflected the market view that interest rates would need to rise.”But he said some first-time buyers may find they have less competition, adding: “They 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.“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: “Variable rates rose again after yesterday’s Bank of England rate hike, and are vulnerable to more rises as we head into 2027.”Here are average house prices followed by the annual change, according to Lloyds (regional annual change figures are based on the most recent three months of approved mortgage transaction data):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%South East, £379,258, minus 2.4%South West, £298,057, minus 2.4%West Midlands, £261,656, 0.3%Yorkshire and the Humber, £214,485, minus 1.0%