House prices hit by steepest drop in three years

Average house prices fell by 1.2% annually in October, the biggest fall in three years, Lloyds data shows.

The latest Lloyds House Price Index reports that average house prices have fallen at their fastest rate since October 2023 and are also down by 0.6% on a monthly basis to £296,285.

Most of the fall came from declines in south England.

Greater London recorded the largest annual decline, down 3.1% year-on-year to £524 ,892, closely followed by the South East and South West which both recorded a drop of 2.4%.

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.”

Northern Ireland continues to lead the UK, with annual house price growth at 4.4 %, although this has slowed from 6.9% in September.

Average price growth in Scotland and Wales was at 2.8% and 1.6% respectively.

Andrew Asaam (pictured), Mortgages Director at Lloyds, says: “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 have 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.”

Nathan Emerson, Chief Executive of Propertymark, says: “With a year that has so far presented significant challenges for consumer affordability, it sadly comes as little surprise that wider concerns within the global economy are now beginning to impact house prices.

“Although the outlook for housing affordability remains uncertain, the recent Budget has provided prospective first-time buyers across England with greater clarity on the support available to them.

“The decision to broaden the ‘Your First Home’ scheme is an encouraging development, potentially making homeownership accessible to more people across England and easing some of the financial barriers associated with buying a first property.

“Nevertheless, 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. As a result, many buyers may take a more measured approach over the coming months, carefully considering their financial position before committing to a house move.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “The rise in base rate will not do any favours to an already-flat housing market. It is continuing worries about the cost of living, prompted particularly by protracted hostilities in the Middle East, which is compromising confidence.

“However, activity and prices have probably held up better than we might have anticipated, partly because house prices are still being outpaced by wage growth.

“Looking forward, we are expecting a fairly low-key end to the year although with some lenders reducing rates, we are likely to see more activity and moves in what is a price-sensitive environment.”

Jason Tebb, President of OnTheMarket, says: “With average property prices falling in October, the challenging economic backdrop is making itself felt and those buyers and sellers who are prepared to make their move are demonstrating caution.

“That said, there are significant regional differences behind the headline figures, with strong price growth in Northern Ireland and Scotland, while prices are under most pressure in southern England and Greater London where values are relatively higher in the first instance.

“Despite higher mortgage costs, the market continues to demonstrate resilience. The Bank of England’s decision to raise interest rates after opting for a hold for so long had already been priced in by mortgage lenders. But with further rate increases expected if inflation continues to rise, this will inevitably result in higher borrowing costs and challenge affordability going forward.

Iain McKenzie, Chief Executive of The Guild of Property Professionals, says: “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.

“That doesn’t mean sellers need to panic or slash their asking prices. It means taking a more informed approach, listening to local market advice and recognising that buyers are negotiating with greater confidence.

“National house price figures only tell part of the story. Demand, supply and affordability vary considerably from one area to another, and well-presented homes in desirable locations can still perform strongly. The market remains active, but sellers can no longer take buyer interest for granted. Realistic pricing is increasingly the difference between securing a sale and watching a property stagnate.”