UK house prices fell by 0.6% in October, the steepest monthly decline in more than three years, confounding analyst expectations of a modest 0.1% rise that would have signalled the market's first monthly increase since June. The average price of a typical UK property stood at £296,285 last month, according to Lloyds, with prices down 1.2% compared with the same month last year, marking the biggest annual fall since October 2023. The decline represents the fourth consecutive monthly drop and comes as high mortgage rates continue to weigh on buyer activity.
Andrew Asaam, the mortgages director at Lloyds, attributed the weakness to inflationary pressures and elevated borrowing costs. "Housing demand is currently being tested by a challenging economic backdrop," he said. "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." The average two-year fixed mortgage rate stood at 5.97% and the average five-year fixed rate at 5.99%, according to the latest Moneyfacts market update.
The Bank of England's decision to raise the base rate by a quarter of a point to 4% one day before the price data was released signals further pressure ahead. The rate increase, the first in three years, came as the central bank tackled inflation pushed higher by the Middle East conflict and soaring oil prices. Greater London recorded the largest regional annual decline in October, with prices falling 3.1% year on year to an average of £524,892, while the south-east and south-west of England saw annual drops of 2.4% and 2.4% respectively, to £379,258 and £298,057.
Market participants signalled expectations of prolonged weakness. Savills said Britain's sluggish housing market was not expected to recover until 2028, when forecast improvements in the economy and mortgage affordability would support a revival. Rightmove downgraded its revenue and profit growth expectations to the lower end of guidance on Friday, reporting that high mortgage rates had resulted in buyer demand falling by 10% and agreed sales down 9% in the four months to 31 October. The property portal noted record numbers of homes on the market led to "some downward pressure" on house prices, though rental market inquiries increased and rental prices rose 2.9% year on year.
Estate agents described the psychological impact of rising rates on the market. Amy Reynolds, head of sales at Antony Roberts in London, said: "The market has lost some momentum as we head towards the end of the year. The real damage is psychological. Another rise tells people that borrowing is getting more expensive, not cheaper, and that makes them hesitate." The Bank of England released figures showing mortgage approvals fell to 53,443 in September, the lowest monthly figure since December 2023, signalling weakening demand for new borrowing.
For savers and borrowers in the UK, the combination of falling house prices and higher mortgage rates means property is becoming less affordable despite nominal prices declining, while those on fixed-rate mortgages face substantially higher borrowing costs when remortgaging.