UK house prices have recorded their first annual decline in almost three years, falling 0.4% year-on-year in August as higher mortgage rates and affordability constraints weigh on the market, according to Lloyds Banking Group.
The average property cost £298,468 in August, down £685 or 0.2% compared with July, the bank’s monthly index found. The figure came in below economists’ expectations of a 0.2% annual rise, according to a Reuters poll.
Market conditions and buyer behaviour
Andrew Asaam, a director at Lloyds, described the UK housing market as “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.”
Mortgage approvals were at their lowest level since the start of 2024, Lloyds reported. The average interest rate for a two-year fixed residential mortgage stood at 5.63% on Monday, according to Moneyfacts, while the average five-year deal was 5.68%. Both were below 5% at the start of the year.
Jeremy Leaf, an estate agent in north London, said the slowdown reflected a “standoff” between nervous buyers and sellers who believe they have already reduced their prices 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.
Regional performance variations
Northern Ireland recorded the strongest house price growth across the UK, with the average home rising 6.9% year-on-year to £231,245. Prices in Scotland increased 3.5% to an average of £223,437, while in Wales prices grew 0.6% to an average of £230,282.
In England, a stark divide emerged between the north and south. The north-east and north-west recorded growth of 2.7% and 2% respectively, with averages of £184,370 and £248,675. The south-east reported the biggest drop in house prices across the UK, down 1.6% to an average of £381,729. In greater London, prices dropped 1.5% to £534,177.
The regional disparities come amid broader concerns about the UK property sector, with new homes complaints increasing significantly and ongoing debates about leasehold reform measures.
Market outlook
Anthony Codling, an RBC Capital Markets analyst, 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,” Codling added.
Asaam said 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.
