House prices fall at steepest rate in more than three years as buyers struggle with higher mortgage rates
House prices fell at the steepest rate in more than three years in October as high mortgage rates put off buyers.
Average property prices dropped by 1.2 per cent in the year to October 2026, marking the steepest decline since October 2023, Lloyds Banking Group said.
It was the fourth month in a row that the index registered a fall in prices.
The typical home was worth £296,285 last month as prices fell 0.6 per cent, or £1,882, compared with September.
The report was gloomier than expected, with analysts having forecast a small monthly rise of 0.1 per cent.
Greater London, the south east and south west of England saw some of the biggest price falls.
Lloyds said higher mortgage rates had prompted more prospective buyers to put off moving.
Surging energy bills and high costs for groceries are also piling pressure on people’s finances.
Struggling market: House prices have faltered as high mortgage costs put off buyers
A glut of homes on the market, notably flats, has also meant sellers have had to be more competitive with pricing in order to try and get their home sold.
Andrew Asaam, mortgages director at Lloyds, said: ‘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.’
On Thursday, the Bank of England base rate increased by 0.25 percentage points to 4 per cent, in the first rise in interest rates in more than three years.
The widely anticipated rise led lenders to increase rates in the weeks beforehand, though some have made small reductions since.
This week Rightmove said the average five-year fixed-rate mortgage was 5.5 per cent on October 31, compared to 5 per cent on June 30.
Approximately 2.3million fixed-rate deals are due to expire in 2027, according to UK Finance, with borrowers on five-year deals who fixed in 2021 likely to be moving to far higher rates.
According to L&C Mortgages, homeowners with a five-year fixed rate deal coming to an end already face having to pay about £4,900 more a year on the average 25-year £200,000 mortgage when they move to a new deal.
The average five-year mortgage rates from the biggest lenders have gone up nearly 4 percentage points since November 2021, it added.
‘Sharp correction’ in south of England
Lloyds said property prices remained ‘under pressure’ across much of southern England, with Greater London recording the largest annual decline, down 3.1 per cent year-on-year to £524,892.
This was closely followed by the south east and south west of England, both down 2.4 per cent to £379,258 and £298,057 respectively.
Jonathan Hopper, chief executive of agent Garrington Property Finders, said: ‘Southern England is in sharp correction territory now. Prices there are sliding so far, and so fast, that they’ve dragged the national average into the red too.’
In England, three regions recorded annual growth with the north west recording an increase of 2.2 per cent, taking the average property price to £249,916, while the north east saw prices rise 2 per cent to £184,318.
The West Midlands was the only other English region to see positive annual property price growth, at 0.3 per cent, with an average property value of £261,656.
An opportunity for buyers?
With prices down in some parts of Britain, certain buyers may be able to seize an opportunity to get a bargain.
Sarah Coles, head of personal finance at AJ Bell, said: ‘In a market like this, if you have a solid deposit and can afford your mortgage, you’re in a great position to negotiate with sellers.
‘However, it’s worth thinking very carefully about how long you plan to stay in the property. If the market faces a period of weakness, you may need to be comfortable staying put for a while.’
But some buyers face a quandary. Hopper said: ‘A lower price tag may offer little relief if higher mortgage payments erode the saving. With no certainty on either front, the right moment to move will depend on each buyer’s finances and circumstances, rather than an attempt to call the bottom of the market.’
Recent Bank of England data showed mortgage approvals for house purchases fell to 53,443 in September 2026, down 2.5 per cent month-on-month and 19.4 per cent year-on-year.
Lloyds said this indicated ‘further softening in housing market activity’.
