UK House Prices Fall 0.6% in October, Biggest Monthly Drop Since August 2023

Key Facts

UK house prices fell 0.6% month on month in October, after declining 0.1% in September, according to data reported by Reuters from Lloyds Banking Group. The reading missed expectations: a Reuters poll had forecast a 0.1% monthly rise, and the result was weaker than every estimate in the poll. The average British property price was £296,285 in October, according to The Guardian. It was the sharpest monthly decline since Lloyds recorded a 1.6% fall in August 2023. Prices fell 1.2% year on year, their biggest decline since October 2023, Lloyds said. The figures put borrowing pressures and households’ reduced ability to afford housing costs among the main factors accompanying the market’s weakness.

Andrew Issam, Lloyds’ mortgages director, said that "renewed inflationary pressures, driven in part by the conflict in the Middle East, are keeping borrowing costs high and adding to pressure on household finances." He added that this was making some buyers more cautious, linking financing costs with demand for homes. The Bank of England raised its key interest rate to 4% at its Nov. 4 meeting, after the Monetary Policy Committee voted 8 to 1 in favor of a 0.25 percentage-point increase. Catherine Mann voted against the proposal, preferring a 0.5 percentage-point increase to 4.25%. Inflation had risen to 3.5% in September, and the bank expects it to reach about 5% by mid-2027 as higher energy prices feed through. The path of interest rates and inflation adds to the pressure on borrowers, with a Lloyds official describing high borrowing costs as a strain on household budgets.

Borrowing indicators point to a slowdown that preceded the October house-price reading: mortgage approvals for house purchases fell 8% in the three months to September compared with the previous three months, reaching their lowest monthly level since 2023, according to the Bank of England’s November Monetary Policy Report. Net approvals for house purchases were 53,400 in September, below an average of about 58,800 over the previous six months, the bank said. The effective interest rate on new mortgages also rose to 4.63% in September, from 4.60% in August. In its September survey, the Royal Institution of Chartered Surveyors said renewed expectations of higher interest rates had become a "new headwind" for the housing market, as buyers grew more cautious and sales activity lost momentum. These indicators provide context for the decline in demand, while new financing remained more expensive than the previous month.

Weakness also extended to construction activity, according to the UK Construction Purchasing Managers’ Index from S&P and CIPS. The index fell to 43.6 points in October from 46.1 points in September, while the house-building activity reading dropped to 35.1 points from 40.7 points. RSM said October’s reading was the weakest since June, citing higher energy prices, rising market interest rates and continued uncertainty over planning reforms as pressures on the sector. The weaker residential construction reading is consistent with the buyer caution described in the Royal Institution of Chartered Surveyors survey, although the index measures construction activity, not house prices themselves. By contrast, data from Nationwide showed that its house prices were unchanged month on month in October, with annual growth of 0.5%, diverging from Lloyds’ monthly and annual declines. Nationwide said its annual growth rate was the slowest since January 2024.

The different readings from Lloyds and Nationwide present a mixed picture of October’s price surveys: the former recorded monthly and annual declines, while the latter showed monthly stability and limited annual growth. The Bank of England is due to publish its next Monetary Policy Summary and meeting minutes on Dec. 17. That will be the next scheduled publication of the bank’s summary and minutes among the releases listed in its calendar. October’s reading remains the focus of the report: it was weaker than the Reuters poll forecast and marked the biggest monthly decline since August 2023. The annual drop was also the largest since October 2023, according to Lloyds. These readings come amid higher borrowing costs, declining mortgage approvals and weaker construction activity indicators.