UK house prices fall at steepest rate in more than three years

October drop of 0.6% leaves average price of property at £296,285, says Lloyds, as high mortgage rates hit market

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 fell 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. “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.