House prices fell by 1.2% year-on-year in October, the biggest drop in three years, according to the latest Lloyds House Price Index.
Lloyds also reported a 0.6% monthly drop, following a 0.1% decrease in September. As a result, the average property price is now £296,285, compared to £298,167 in September.
Andrew Asaam, Mortgages Director at Lloyds, said: “Housing demand is currently being tested by a challenging economic backdrop. 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.”
“However, it’s important to put October’s fall in context. House prices have changed relatively little over the past couple of years, as the market has gradually adjusted to higher interest rates. The recent rise in energy and other household costs have added to the pressure on buyers, so some adjustment in prices is not surprising.”
“Looking ahead, conditions are likely to remain subdued in the near term, but we don’t expect this to lead to a sustained period of falling house prices. With wages continuing to rise faster than property prices, the gap between earnings and house prices should gradually narrow, helping affordability to improve over time.”
On a regional basis, Northern Ireland continues to outperform the rest, with annual house price growth at 4.4%. However, this has slowed considerably from a 6.9% increase in September.
Scotland also continues to post solid growth, with prices up 2.8 % over the past year to an average of £222,667. Growth has also strengthened slightly in Wales, rising to 1.6%, with the typical property now valued at £233,116.
In England, three regions recorded annual growth, with the North West recording an increase of 2.2%, while the North East saw prices rise 2.0% to £184,318.
The West Midlands was the only other English region to see positive annual growth at 0.3%.
Elsewhere, house prices remain under pressure across much of southern England, with Greater London recording the largest annual decline, down 3.1% year-on-year to £524,892, closely followed by the South East and South West, both down 2.4% to £379,258 and £298,057 respectively.
Jason Tebb, president of OnTheMarket, commented: “With average property prices falling in October, the challenging economic backdrop is making itself felt, and those buyers and sellers who are prepared to make their move are demonstrating caution.”
“That said, there are significant regional differences behind the headline figures, with strong price growth in Northern Ireland and Scotland, while prices are under most pressure in southern England and Greater London where values are relatively higher in the first instance.”
“Despite higher mortgage costs, the market continues to demonstrate resilience. The Bank of England’s decision to raise interest rates after opting for a hold for so long had already been priced in by mortgage lenders. But with further rate increases expected if inflation continues to rise, this will inevitably result in higher borrowing costs and challenge affordability going forward.”
“Serious buyers and sellers continue to engage with each other but with the former having potentially less purchasing power after yesterday’s announcement, the sensible pricing of property coming to market is crucial.”
