By Karim Hammam
UK house prices recorded their steepest annual decline in three years in October, with the average property value falling 1.2% year-on-year to £296,285, according to Lloyds Banking Group's house price index. The average price dropped £1,882, or 0.6%, from September, marking the sharpest monthly decrease since October 2023.
Monthly and annual declines
The Lloyds index showed prices have fallen on a quarterly basis for six consecutive months, with the annual pace of decline accelerating by a factor of 12 between September and October. Andrew Asaam, mortgages director at Lloyds, said housing demand is being tested by a challenging economic backdrop, including renewed inflationary pressures driven partly by the Middle East conflict that are keeping borrowing costs high.
Economic pressures and affordability
Asaam noted that house prices have changed relatively little over the past couple of years as the market adjusted to higher interest rates, and that rising energy and household costs have added to buyer pressure. However, he said wages continuing to rise faster than property prices should gradually narrow the affordability gap. Chris Barry, director at Thomas Legal, said the 1.2% annual fall combined with rising wages and inflation means the affordability gap is closing, calling it good news for first-time buyers.
Regional disparities
The decline is concentrated in southern England. London, the East, the South East and the South West all recorded negative year-on-year changes, with London down 3.1% to £524,892. Jonathan Hopper, chief executive of Garrington Property Finders, said southern England is in sharp correction territory, dragging the national average into negative territory. In contrast, Northern Ireland rose 4.4%, the North West 2.2%, and Scotland 2.8%.
Interest rate impact
On Thursday, the Bank of England raised its base rate by 0.25 percentage points to 4%, the first increase in more than three years. UK Finance said the rise would add £30.72 on average to tracker mortgage payments, while 2.3 million fixed-rate deals are due to expire in 2027. Industry experts warned the rate hike will weigh on consumer confidence, with Karen Noye of Quilter describing the market as "running up the down escalator" and Sarah Coles of AJ Bell saying higher mortgage rates and a glut of homes have taken their toll.
