UK house prices fell at the steepest rate in more than three years in October, marking the fourth consecutive monthly decline, as high mortgage rates hit the housing market.
The average price of a typical UK property stood at £296,285 last month as prices unexpectedly dropped 0.6% compared with September, the steepest fall since the lender Lloyds recorded a 1.6% drop in August 2023.
Analysts had expected a small monthly rise of 0.1%, which would have marked the first monthly increase since June.
House prices were down 1.2% compared with the same month last year, the biggest annual fall since October 2023.
“Housing demand is currently being tested by a challenging economic backdrop,” said Andrew Asaam, the mortgages director at Lloyds. “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.”
Prospective buyers are facing increasingly high borrowing costs, with the average two-year fixed mortgage running at 5.97% and the average five-year fixed rate at 5.99%, according to the latest Moneyfacts market update.
The figures come a day after the Bank of England’s monetary policy committee put up the base rate by a quarter of a point to 4%, the first increase in three years, to fight inflationary pressure caused by the Iran war.
The conflict in the Middle East has driven the price of oil above $100 a barrel in recent months, resulting in soaring fuel prices and pushing inflation to 3.5% in September.
“The market has lost some momentum as we head towards the end of the year,” said Amy Reynolds, the head of sales at the Richmond estate agency Antony Roberts in London. “Buyers are still out there, but they’re being careful. The people hit hardest are those remortgaging and second-steppers trying to stretch to one more bedroom.
“The real damage is psychological. Another rise tells people that borrowing is getting more expensive, not cheaper, and that makes them hesitate.”
The property services company Savills this week said Britain’s sluggish housing market was not expected to recover until 2028, when a forecast improvement in the economy and mortgage affordability are expected to support a recovery.
While annual house price growth remains relatively strong in Northern Ireland, Scotland and Wales, there is growing pressure in the south of England.
Greater London recorded the largest annual decline in October, with prices falling 3.1% year on year to an average of £524,892.
The capital was followed by the south-east and south-west of England, which recorded annual declines of 2.4% last month, to £379,258 and £298,057 respectively.
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On Friday the online property portal Rightmove downgraded its expectations of revenue and profit growth to the lower end of its guidance amid a slowdown in the housing market, in results for the four months to 31 October.
It said that high mortgage rates had resulted in buyer demand falling by 10%, with agreed sales down 9%, as record numbers of homes on the market led to “some downward pressure” on house prices.
Rightmove said there had been an increase in inquiries per property in the rental market, with prices up 2.9% year on year, but there were 6% fewer new homes on the website compared with the end of last year.
Last month, the Bank of England released figures showing that the number of home mortgage approvals fell to 53,443 in September, the lowest monthly figure since December 2023.
Last week, Nationwide reported that house prices flatlined in October, with the annual rate of growth dropping to the slowest in more than two years.
“The path back to growth runs through rate stability, and that road just got a little longer,” said Anthony Codling, an analyst at RBC Capital Markets. “On balance, this report is cautiously negative for near-term sentiment but does not signal a structural collapse.”
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