UK House Prices Record Steepest Drop in Over Three Years as Mortgage Rates Squeeze Market

UK house prices experienced their sharpest drop in over three years in October, entering a fourth straight monthly decline as elevated mortgage rates weighed on the market.

The average UK property price was £296,285 in October, down 0.6% from September—a sharper fall than the 1.6% decline recorded by Lloyds in August 2023.

Analysts had forecast a modest 0.1% monthly rise, which would have been the market’s first increase since June.

Year‑on‑year, house prices fell 1.2%, the largest annual drop since October 2023.

“Housing demand is currently being tested by a challenging economic backdrop,” said Andrew Asaam, 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 confront rising borrowing costs, with the average two‑year fixed mortgage at 5.97% and the average five‑year fixed rate at 5.99%, according to Moneyfacts.

These figures follow a Bank of England rate hike of 0.25 percentage points to 4%—the first increase in three years—to combat inflation driven by the Iran conflict.

The Middle East conflict has pushed oil above $100 a barrel, driving up fuel prices and lifting inflation to 3.5% in September.

“The market has lost some momentum as we head towards the end of the year,” said Amy Reynolds, head of sales at Antony Roberts estate agency. “Buyers are still out there, but they’re being careful. Those remortgaging and second‑steppers trying to stretch to one more bedroom are feeling the pressure the most.

“The real damage is psychological. Another rise tells people that borrowing is getting more expensive, not cheaper, and that makes them hesitate.”

Savills indicated this week that the UK housing market is unlikely to rebound until 2028, when improved economic conditions and mortgage affordability are projected to revive activity.

Annual price growth remains relatively strong in Northern Ireland, Scotland and Wales, but pressure is mounting in southern England.

Greater London saw the steepest annual drop in October, with prices falling 3.1% year on year to an average of £524,892.

The south‑east and south‑west regions recorded declines of 2.4% last month, reaching average prices of £379,258 and £298,057 respectively.

Rightmove reported on Friday that it now expects revenue and profit growth at the lower end of its guidance, reflecting a slowdown in the housing market for the four months ending 31 October.

High mortgage rates have cut buyer demand by 10% and agreed sales by 9%, the portal said, as a record flow of properties on the market exerts “some downward pressure” on prices.

Inquiries per rental property have risen and rents are up 2.9% year on year, yet new listings on the site are down 6% from the end of last year, Rightmove added.

Bank of England data released last month showed mortgage approvals dropping to 53,443 in September—the lowest level since December 2023.

Nationwide reported last week that house prices remained flat in October, with the annual growth rate hitting its slowest pace in over 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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