UK house prices record first annual decline in nearly three years

UK house prices have fallen for the first time in almost three years, as prospective buyers were squeezed by higher mortgage rates, geopolitical uncertainty and stretched affordability.

Prices have dropped by 0.4% compared with a year ago, the first year-on-year decrease since November 2023, according to the lender Lloyds. That came in below expectations of a 0.2% annual rise, according to a poll of economists by Reuters.

The average property cost £298,468 in August, falling 0.2% or £685 compared with July, the bank’s monthly index found.

Andrew Asaam, a director at Lloyds, said the UK’s housing market was “subdued” in the face of higher inflation, borrowing costs and geopolitical tensions.

“What we’re not seeing is a rush of homeowners cutting prices,” he said. “But more are choosing to sit tight, with sellers reluctant to accept offers they feel are too low, while some buyers are waiting to see how conditions develop.”

He added that the market is forecast to “remain fairly subdued in the months ahead, but this will likely only have a limited impact on house prices”.

Tensions in the Middle East have stoked fears around inflation this year, feeding expectations of further interest rate rises.

Property buyers looking for a mortgage deal have faced months of heightened volatility, with the average rate for a two-year fixed residential mortgage at 5.6% on Friday, according to the market tracker Moneyfacts, while the average five-year deal was 5.66%. Both were below 5% at the start of the year.

Mortgage approvals were at their lowest level since the start of 2024, Lloyds said.

Jeremy Leaf, an estate agent in north London, said the slowdown in the market reflected a “standoff” between nervous buyers and sellers who believe they have already reduced their prices by as much as they can.

“There is more movement when sellers set realistic asking prices from the outset and appreciate after a period of marketing that even a cheeky offer is worth considering,” he said.

“Activity is picking up now that the main holiday season is over, which is helping to improve confidence a little.”

Northern Ireland was still the best performer for house price growth across the UK, with the average home rising by 6.9% year on year to £231,245.

Prices in Scotland rose by 3.5% to an average of £223,437, while in Wales prices grew by 0.6% to an average of £230,282.

In England, there was a stark divide between the north and south, with the north-east and north-west recording growth of 2.7% and 2% respectively, with averages of £184,370 and £248,675.

Meanwhile the south-east reported the biggest drop in house prices across the UK, down by 1.6% to an average of £381,729. In greater London, prices dropped 1.5% to £534,177.

RBC Capital Markets analyst Anthony Codling said the Lloyds figures paint “a picture of a market under meaningful pressure from multiple directions: elevated mortgage rates, geopolitical uncertainty pushing up energy prices, and a consumer that is both cautious and increasingly stretched.

“Sellers are not panicking and cutting prices aggressively; they are simply sitting tight. Buyers, meanwhile, are waiting for clarity on the path of interest rates.”