UK House Prices Post Biggest Annual Fall in Three Years

British house prices fell 1.2 percent in the year to October, the biggest annual fall since October 2023, mortgage lender Lloyds said on Friday. Prices fell 0.6 percent in October alone, after a 0.1 percent fall in September. A Reuters poll of economists had expected a rise of 0.1 percent on the month. The average price of a home stood at 296,285 pounds, down 1,882 pounds in a month. It was the fourth monthly fall in a row and the steepest monthly drop since August 2023, when prices fell 1.6 percent.

Mortgage costs did the damage

Reuters reported that British mortgage rates have climbed sharply since the start of the US-Israeli war on Iran, as market borrowing costs for lenders rose and investors came to expect more Bank of England rate hikes. The Bank raised Bank Rate to 4 percent on Thursday, its first increase in more than three years, and investors are pricing in more hikes in 2027. Lloyds figures contrast with data from rival lender Nationwide last week, which showed prices flat in October and up 0.5 percent on the year.

Prices also fell 0.5 percent over the quarter, Lloyds said. For buyers, the fall cuts both ways. A cheaper average price helps first-time buyers who can still get a mortgage, but the higher borrowing costs that pushed prices down also raise the monthly payment on any new loan, and lenders have been quick to reprice deals since Thursday's rate rise.

London falls, the north still grows

London recorded the largest annual fall, with average prices down 3.1 percent to 524,892 pounds. The South East and the South West both fell 2.4 percent on the year. Northern Ireland rose 4.4 percent, Scotland rose 2.8 percent, and in England the North West rose 2.2 percent and the North East rose 2.0 percent.

What Lloyds expects next

Andrew Asaam, mortgages director at Lloyds, said prices fell by a larger margin in October than in recent months. Lloyds said it expects the market to stay subdued in the coming months, but does not expect the fall "to lead to a sustained period of falling house prices." Estate agent platform Rightmove has reported buyer demand down 10 percent and sales agreed down 9 percent, a sign that high borrowing costs are still holding deals back.

Key numbers

October monthly change: down 0.6 percent. Annual change: down 1.2 percent, the largest since October 2023. Average price: 296,285 pounds. London: down 3.1 percent to 524,892 pounds. Bank Rate: 4 percent after Thursday's rise.