House prices drop as property market remains under pressure

House prices recorded their biggest annual fall in three years in October, as the UK property market remains subdued, according to the latest Lloyds House Price Index.

Prices fell by 0.6% in October, following a 0.1% decline in September.

On an annual basis, house prices fell 1.2%, the steepest yearly decline since October 2023.

House prices remain under pressure

According to Lloyds house price index, the average property price is now £296,285, compared to £298,167 in September.

The data also reveals Northern Ireland continues to lead the UK, with annual house price growth at + 4 .4 %, with the rate slowing considerably from +6.9 % last month.

Scotland continues to post solid growth, with prices up + 2.8 % over the past year to an average of £222,667. Growth has also strengthened slightly in Wales, rising to +1.6 %, with the typical property now valued at £233,116.

In England, three regions recorded annual growth, with the North West recording an increase of +2. 2%, taking the average property price to £ 249 ,916, while the North East saw prices rise + 2.0 % to £ 184 ,318.

The West Midlands was the only other English region to see positive annual growth, at +0. 3%, with an average property value of £261,656.

House prices remain under pressure across much of southern England, with Greater London recording the largest annual decline, down -3.1% year -on -year to £ 524 ,892 , closely followed by the South East and South West , both down -2.4 % to £ 379 ,258 and £298,057 respectively.

Challenging economic backdrop

Andrew Asaam, mortgages director at Lloyds, said conflict in the Middle East is causing pressure on the housing market.

He 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 has 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.”

Industry reaction to house price index

Nathan Emerson, CEO 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.

“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, said: “Yesterday’s 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.”

Tanya Elmaz, director of sales at Together, said: “A consecutive fall in house prices according to Lloyds underlines the distinct lack of momentum the market is currently suffering from.

“Normally autumn is a period of increased buying activity in the property market, but this year’s economic conditions are acting as a serious deterrent to borrowing. High mortgage rates are beginning to bite, and speculation on the Autumn Budget will also have stopped buyers from moving forward with their plans.