House prices fall for first time in three years as borrowing costs weigh on buyers
House prices fell in the year to August in the first annual decrease in nearly three years, as high borrowing costs cause prospective buyers to “sit tight”.
The average UK house price edged down 0.2 per last month to £298,468, according to Lloyd’s house price index. This marks a 0.4 per cent year-on-year fall, the first negative yearly move since November 2023.
The impacts of the Iran war on the UK’s housing market have worsened in recent months, as higher inflation and borrowing costs hamper housing affordability, weighing on buyers and housebuilders.
The UK’s housing market has slowed the most in the south of England, where higher prices mean buyers and sellers are more exposed to significant costs like stamp duty.
The average house price in London fell by 1.5 per cent to £534,177 in the year to August, according to Lloyds. This was the second-biggest drop across the country, beaten only by the South East, where prices fell by 1.6 per cent to £381,729.
“As has been the case for several months, there remains a clear divide in house price performance across the UK,” property experts at the bank said.
August’s drop in house prices comes as housing market activity is at its slowest in more than two years. Mortgage approvals are at their lowest level since the start of 2024, according to the Bank of England.
The number of residential transactions in the three months to July was four per cent lower than in the preceding three months, according to recent HMRC figures.
Housebuyers brace for Budget
Andrew Asaam, mortgages director at Lloyds, said: “The housing market has faced a more difficult backdrop in recent months, with the impact of global events on inflation and borrowing costs creating greater economic uncertainty.
“What we’re not seeing is a rush of homeowners cutting prices. 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.”
Assam said that he expects the UK’s housing market to “remain subdued” in the coming months, as buyers brace for the October Budget.
But house prices are unlikely to fall much further, he added, because growing wages and resilient employment levels will “support demand from those who need or want to move”.
Nathan Emerson, chief executive of estate agents’ trade body Propertymark, said: “As we head into the autumn months, the upcoming Autumn Budget may well help determine the plans of many aspiring buyers and sellers for their next house move, alongside the upcoming inflation figures and interest rate announcement in the middle of the month.
“Following what has, in part, been an uneven year, it is hoped that the housing market will regain a more stable footing as the year progresses.”