UK house prices fall for first time in nearly two years as mortgage pressure bites

UK house prices have fallen on an annual basis for the first time since November 2023, as stretched affordability, elevated borrowing costs and growing economic uncertainty weigh on the property market.

The average property price fell by 0.4 per cent in the year to August, according to Lloyds, marking a symbolic reversal after almost two years of uninterrupted annual growth.

Prices also declined by 0.2 per cent during the month, following a 0.1 per cent fall in July, leaving the average UK home worth £298,468.

Andrew Asaam, mortgages director at Lloyds, said the figures reflected a market increasingly constrained by uncertainty rather than a wholesale collapse in demand.

“The average property now costs £298,468, marking the first annual fall in house prices since November 2023.

“Despite that, prices are still marginally up (a 0.2% increase) since the start of the year.

“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.”

The figures underline the growing pressure on Britain’s housing market as buyers contend with mortgage costs that remain far above the ultra-low levels seen before the Bank of England’s inflation battle.

While prices have begun to edge backwards, the adjustment has so far been modest. Average property values remain around 25 per cent higher than they were at the end of 2019.

Mr Asaam said: “Average house prices remain around 25% higher than they were at the end of 2019, despite the substantial increase to interest rates seen over recent years.”

The slowdown has also exposed an increasingly sharp regional divide.

Northern Ireland continued to record the strongest annual growth, with house prices rising 6.9 per cent to a record average of £231,245. Scotland recorded annual growth of 3.5 per cent, while Welsh prices rose by 0.6 per cent.

Within England, northern regions continued to outperform, while much of southern England remained under pressure as higher property values collided with worsening affordability.

Lloyds expects the market to remain subdued through the autumn but does not anticipate a dramatic fall in prices.

Mr Asaam said: “We expect the market to remain fairly subdued in the months ahead, but this will likely only have a limited impact on house prices.

“While affordability remains a challenge, wages continue to grow and employment has held up better than many anticipated. This will help to support demand from those who need or want to move.”

Estate agents and property specialists said the balance of power was increasingly shifting towards buyers.

Nicky Stevenson, managing director of Fine & Country, said: “In a market where buyers have more choice and are increasingly payment-conscious, an ambitious asking price can quickly become a barrier to securing a deal.

“Sellers who price realistically from the outset are much more likely to capture the attention of the buyers who are ready to act.”

Jonathan Hopper, chief executive of Garrington Property Finders, said some homeowners were already confronting a painful reassessment of their expectations.

“Struggling sellers are cutting prices pre-emptively to attract interest, with those putting their home on the market now often facing an uncomfortable reality check on their price expectations.”

The prospect of another politically charged Budget is adding to the uncertainty hanging over the market.

Jason Tebb, president of OnTheMarket, said: “As we head into autumn, and another Budget beckons, political uncertainty and challenging economic conditions continue to form a backdrop to activity.”

Mortgage borrowers also face a fresh threat from recent turmoil in the bond markets.

Ian Futcher, a financial planner at Quilter, warned that rising swap rates could feed directly into the cost of home loans, potentially derailing prospective purchases.

“Clearly, stretched affordability and an uncertain economic background has had a negative impact on house prices and, unfortunately, recent volatility in bond markets has the potential to put further pressure on mortgage rates.

“Swap rates have risen sharply in recent days and some lenders have already begun adjusting pricing in response.

“For first-time buyers who have spent months building a deposit and carefully calculating what they can afford, sudden shifts in mortgage rates can pull the rug from under their feet just as they are preparing to make a move.”

The cooling market may nevertheless offer some opportunities to those trying to get onto the property ladder.

Sarah Coles, head of personal finance at AJ Bell, said falling prices could bring some homes within reach for first-time buyers — provided mortgage costs do not rise further.

“Horribly high prices have made it incredibly difficult to get onto the property ladder, and if they come down off recent highs, it could bring properties within reach – especially if sellers are prepared to negotiate.

“The fly in the ointment is that mortgage costs are still a huge stretch, so the size of your deposit will make all the difference.

“It’s worth considering any help you can get, from topping up your Lifetime Isa to get a bigger bonus from the Government, to asking family for help.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders were continuing to search for ways to support first-time buyers.

“Lenders are working hard to offer solutions to those trying to get on the ladder for the first time.”

However, analysts cautioned that any recovery is likely to be gradual.

Iain McKenzie, chief executive of The Guild of Property Professionals, said: “If mortgage rates remain broadly stable and confidence continues to improve, the traditional autumn uplift in activity could provide some momentum.

“But affordability remains the defining constraint, so any recovery is likely to be measured rather than dramatic.”

For now, Britain’s property market appears caught in an uncomfortable stalemate: buyers are waiting for prices and mortgage rates to improve, while many sellers remain unwilling to accept that the homes they bought during the boom may no longer command the prices they expected.