UK house prices recorded their sharpest annual decline in three years in October, as rising mortgage costs and weakening buyer confidence weighed on the market.
The latest Lloyds House Price Index shows property values fell by 0.6% during the month, taking the average UK house price to £296,285.
Prices were also 1.2% lower than a year earlier, marking the biggest annual fall since October 2023.
On a quarterly basis, prices declined by 0.5%, adding to evidence of a slowdown in the housing market.
The figures come as estate agents face weaker buyer demand, fewer sales agreed and growing affordability pressures.
Higher mortgage rates put pressure on house prices
Andrew Assam, mortgages director at Lloyds, said: “UK house prices fell by -0.6% in October, a larger drop than in recent months, taking the average property price down to £296,285. Prices were also -1.2% lower than a year ago, the biggest annual fall since October 2023.
“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.”
Rightmove reports falling buyer demand and sales
The Lloyds figures follow a trading update from Rightmove, which revealed a 10% fall in buyer demand and a 9% decline in sales agreed.
The portal also reported record levels of available housing stock, placing additional downward pressure on asking prices.
Meanwhile, Rightmove said the average five-year fixed mortgage rate increased from 5% at the end of June to 5.5% by 31 October.
The Bank of England’s decision to raise its base rate from 3.75% to 4% has added further uncertainty for borrowers.
Nathan Emerson, chief executive of Propertymark, said: “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.”
He welcomed the government’s decision to broaden its proposed Your First Home scheme but warned that economic uncertainty would continue to affect buyers.
“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.”
London and southern England lead price falls
The Lloyds figures reveal significant regional differences in housing market performance.
London recorded the largest annual decline, with average prices falling by 3.1%.
The South East and South West both saw annual falls of 2.4%.
However, prices continued to rise in several other regions.
Northern Ireland recorded annual growth of 4.4%, followed by Scotland at 2.8%.
In England, the North West saw prices increase by 2.2%, while the North East recorded growth of 2%.
Jason Tebb, president of OnTheMarket, commented: “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.”
Tebb said realistic asking prices would become increasingly important as mortgage affordability tightened.
“Serious buyers and sellers continue to engage with each other but with the former having potentially less purchasing power after yesterday’s announcement, the sensible pricing of property coming to market is crucial.”
Estate agents warn of slower market heading into 2027
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, believes buyers were becoming more cautious.
“The market has lost some momentum as we head towards the end of the year. Buyers are still out there, but they’re being careful.
“Borrowing costs are the main brake. Yesterday’s base rate rise has been largely priced in already, with fixed rates heading towards 6% for weeks. The real damage is psychological. Another rise tells people that borrowing is getting more expensive, not cheaper, and that makes them hesitate.”
Reynolds said existing homeowners looking to remortgage and buyers seeking larger properties faced particular difficulties.
“The people hit hardest are those remortgaging and second-steppers trying to stretch to one more bedroom.
“We expect a quiet December and a slow start to 2027. The sellers who still get deals done will be those who price realistically from day one.”
Mortgage brokers warn borrowing costs could rise further
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the market was struggling to gain momentum.
“The market is treading water as average annual house price growth falls. The high cost of fuel and rising energy bills, lack of anything in the Budget to stimulate the market – at least until the first-time buyer scheme is introduced in the spring – and the prospect of higher interest rates are all giving buyers reason to pause.”
Harris warned that the latest Bank of England rate increase could also affect homeowners approaching the end of fixed-rate mortgage deals.
“The Bank of England’s decision to increase interest rates won’t help sluggish activity in the purchase market. It may focus the minds of those remortgaging however, particularly those who face a sharp rise in mortgage payments as they come off fixed-rate deals next year.
“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.”
Lloyds does not expect prolonged house price downturn
Despite October’s decline, Lloyds does not expect a sustained period of falling property values.
The lender believes wage growth could gradually improve affordability, provided earnings continue to rise faster than house prices.
However, the immediate outlook remains challenging.
Higher mortgage rates, rising household costs and weaker buyer confidence are likely to continue influencing activity over the coming months.
For estate agents, the message from industry commentators is consistent: buyers remain active, but realistic pricing will be increasingly important in securing sales.
