House prices drop annually for first time in three years

Average house prices have dropped annually for the first time in almost three years, new figures reveal.

The latest Lloyds House Price Index for August shows average property values dropped 0.4% annually, the first year-on-year decrease since November 2023.

Average prices were also down on a monthly basis by 0.2%, putting the typical British house price at £298,468.

Regional divide

Northern Ireland continues to record the strongest annual growth, with prices up 6.9% year-on-year to an all-time high of £231,245.

Average prices in Scotland are up 3.5% to £223,437, while Wales is lagging with annual growth at 0.6% to £230,282.

Within England, growth remains strongest in northern regions. The North East recorded annual growth of 2.7%, taking the average property price to £184,370, while the North West saw prices rise 2.0% to £248,675.

By contrast, the South East saw the largest decline, with prices down 1.6% annually to £381,729, followed by Greater London, where prices fell 1.5% to £534,177.

The housing market has faced a more difficult backdrop in recent months.”

Andrew Asaam , Mortgages Director at Lloyds, says: “The housing market has faced a more difficult backdrop in recent months, with the impact of global events on inflation and borrowing costs creating greater economic uncertainty.

“What we’re not seeing is a rush of homeowners cutting prices. But more are choosing to sit tight, with sellers reluctant to accept offers they feel are too low, while some buyers are waiting to see how conditions develop.

“As a result, fewer homes are changing hands, with latest industry figures showing mortgage approvals now at their lowest level since the start of 2024.

Assam added that it is also important to keep recent price movements in perspective.

He says: “Average house prices remain around 25% higher than they were at the end of 2019, despite the substantial increase to interest rates seen over recent years.

“The market’s adjustment to higher borrowing costs has been gradual, with wage growth helping to offset some of the pressure on affordability. The recent modest declines in prices are best viewed in that wider context.

“We expect the market to remain fairly subdued in the months ahead, but this will likely only have a limited impact on house prices. While affordability remains a challenge, wages continue to grow and employment has held up better than many anticipated. This will help to support demand from those who need or want to move.”

Iain McKenzie, Chief Executive of The Guild of Property Professionals, says: “The latest Lloyds data underlines just how resilient the UK housing market is proving to be in an unusually challenging economic environment. A 0.2% monthly fall in prices is hardly a dramatic correction, particularly when households are contending with renewed inflationary pressure, higher energy costs and mortgage rates that remain elevated.

“The key question now is whether we are seeing a temporary summer pause or the start of a more sustained period of softer activity. Transaction volumes remain relatively healthy, while improving consumer confidence and the early signs of an autumn recovery in buyer searches suggest there is still underlying demand in the market.

“The next few months will be telling. If mortgage rates remain broadly stable and confidence continues to improve, the traditional autumn uplift in activity could provide some momentum. But affordability remains the defining constraint, so any recovery is likely to be measured rather than dramatic.

“For buyers, this could create an interesting window of opportunity. For sellers, the message is equally clear: demand is there, but it cannot be taken for granted. Homes that are sensibly priced from day one are far better positioned to convert that demand into viewings, offers and ultimately a sale.”

Nicky Stevenson, Managing Director of Fine & Country, says: “A 0.2% fall in UK house prices in August is a relatively modest move, but it masks a market that is becoming increasingly selective. Buyers are still active, yet higher mortgage costs and renewed inflation are making affordability much more important to the decision-making process.

“There are encouraging signs beneath the headline numbers. Zoopla’s 7% annual increase in people searching for homes suggests buyers are re-engaging, while the improvement in consumer confidence and the traditional seasonal uplift in autumn activity could give the market a welcome boost over the coming months.

“However, browsing is not the same as buying. Mortgage approvals are around 15% below last year’s level, and that gap shows that affordability is still holding some would-be movers back. The autumn market therefore needs to be viewed as a gradual recovery rather than a sudden surge.

“That makes pricing absolutely critical. In a market where buyers have more choice and are increasingly payment-conscious, an ambitious asking price can quickly become a barrier to securing a deal. Sellers who price realistically from the outset are much more likely to capture the attention of the buyers who are ready to act.

“The ingredients for a stronger autumn are certainly there, but the market will reward realism, not optimism alone.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says:  “We are seeing a bit of a stand-off between buyers who are nervous about making offers while worried about the effects of inflation on mortgage costs and sellers who believe they have reduced as much as they can.

“Therefore, prices overall in the fewer properties which are changing hands are not only softening but sales are taking longer.

“There is more movement when sellers set realistic asking prices from the outset and appreciate after a period of marketing that even a cheeky offer is worth considering. Thankfully, activity is picking up now that the main holiday season is over, which is helping to improve confidence a little.”

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “August delivered some strong sales – this is no longer a surprise to us, as it’s become a quietly confident month: low on viewing numbers, but with buyers willing to commit and secure a property while others hold out for September.

“We expect September to bring less new stock to market than usual, as we’re heading into a second year of ‘wait and see’ ahead of the Budget.

“Our hope is for a post-Budget bounce and a busy December, setting things up well for 2027.”

Nathan Emerson, Chief Executive of Propertymark, says “Across the year so far, many people have, in some way, felt the direct impacts of ongoing global unease on their monthly outgoings. We have witnessed many household costs continue to rise, while consumer affordability regarding housing has prompted a wave of caution, subsequently tapping the brakes on house price growth currently.

“As we head into the autumn months, the upcoming Autumn Budget may well help determine the plans of many aspiring buyers and sellers for their next house move, alongside the upcoming inflation figures and interest rate announcement in the middle of the month.

“Following what has, in part, been an uneven year, it is hoped that the housing market will regain a more stable footing as the year progresses.”