London house prices post their steepest annual fall in three years

London's housing market has had a rougher year than the rest of the country. According to the Lloyds Bank house price index, prices in the capital fell by 3.1% in the 12 months to October, taking the average to £524,892.

The Evening Standard reports it is the steepest annual fall since November 2023, when Lloyds recorded a drop of 3.4%. London has also seen the biggest decline of any UK region.

How London compares

Across the UK, prices fell by 1.2% over the year, with the average home now at £296,285. City AM notes that the 12 months to September had seen a fall of only 0.1%. Since September, UK values have dropped by 0.6%, equivalent to £1,882, the Standard reports.

Not everywhere is sliding. The East and West Midlands saw the smallest falls, at 0.3%. Scotland, Northern Ireland, the North West and the North East all rose. Northern Ireland led with 4.4% annual growth, while the North West gained 2.2%.

Why it is happening

The Standard says the national decline has partly been attributed to conflict in the Middle East, which is straining household finances. Andrew Asaam, mortgages director at Lloyds, told City AM that renewed inflationary pressures, driven in part by that conflict, are keeping borrowing costs high and making some buyers more cautious.

The index lands just after the Bank of England raised interest rates by 0.25 percentage points to 4% on Thursday, its first rise in more than three years. UK Finance estimates the increase will cost the average homeowner on a tracker deal £30.72 more.

Most owners are shielded for now: around nine in ten (87%) outstanding homeowner mortgages are fixed rate. But UK Finance's analysis shows some 2.3 million fixed-rate deals are due to expire in 2027. According to Moneyfacts, the average two-year fixed rate is 5.97% and the average five-year rate is 5.99%.

What the experts say

Asaam urged some context. He said house prices have changed relatively little over the past couple of years as the market adjusts to higher interest rates. Conditions are likely to stay subdued in the near term, he said, but Lloyds does not expect a sustained period of falling prices.

He added that with wages rising faster than property prices, the gap between earnings and house prices should gradually narrow.

Karen Noye, a mortgage expert at Quilter, offered a more weary image: "The housing market increasingly feels like it is running up the down escalator."

For first-time buyers, there may be a small upside. David Hollingworth, associate director at L&C Mortgages, said they "will have time to consider their options and potentially negotiate a little harder".

Sellers are being told to adjust. Iain McKenzie, chief executive of The Guild of Property Professionals, said the figures should be a wake-up call for those still pricing homes on what they might have achieved at the height of the market.

Help to Buy returns in April

City AM reports that buyers and housebuilders are looking ahead to the start of the government's revived Help to Buy scheme in April next year. It offers equity loans to help first-time buyers with deposits and is modelled on the earlier scheme created by former chancellor George Osborne.

Housebuilders and property experts expect a boost, though they have criticised the delayed start and the £650,000 cap on inner London homes. Nathan Emerson, chief executive of Propertymark, said the scheme could "potentially make homeownership more accessible to people across England", but warned that renewed inflation worries and the rate rise will continue to weigh on confidence.

Jason Tebb, president of On The Market, said lenders had already priced in Thursday's hike, so a huge jump in borrowing costs is unlikely. He added that further rises, if inflation keeps climbing, would challenge affordability.

Sources: Evening Standard, City AM