Star Metro - UK House Prices Fall 1.2% as London Records Sharpest Annual Decline

London has recorded its largest annual decline in property values in three years, according to a new index from Lloyds Bank. The capital’s house prices fell by 3.1% over the past year, marking the sharpest drop of any UK region despite remaining significantly more expensive than other parts of the country.

Across the United Kingdom, average house prices decreased by 1.2% in the 12 months leading up to the latest data collection. This decline has brought the national average property price down to £296,285. The contraction in value highlights a growing disparity between the most and least expensive areas, with the gap between London and the cheapest region now standing at £340,574.

London’s current average property price is £524,892, maintaining its position as the most expensive market in the UK. In contrast, the North East recorded the lowest average price at £184,318. Unlike the capital and other southern regions, the North East saw its property values rise by 2% over the period.

The South East and South West followed London with significant declines, both experiencing a 2.4% drop in property values. Meanwhile, the East Midlands and West Midlands showed relative stability, with prices falling by only 0.3%. Several regions bucked the national downward trend, with property values increasing in Scotland (2.8%), Northern Ireland (4.4%), the North West (2.2%), and the previously mentioned North East.

Andrew Asaam, mortgages director at Lloyds Bank, attributed the current market conditions to a challenging economic backdrop. He noted that renewed inflationary pressures, partly driven by conflict in the Middle East, have kept borrowing costs high. This environment has added pressure to household finances, making potential buyers more cautious.

Asaam emphasized the need to contextualize October’s fall in prices. He stated that house prices have changed relatively little over the past couple of years as the market gradually adjusted to higher interest rates. The recent rise in energy and other household costs contributed to this necessary adjustment, which he described as unsurprising given the financial squeeze on buyers.

Looking ahead, Asaam predicted that market conditions are likely to remain subdued in the near term. However, he did not expect this to lead to a sustained period of falling house prices. He pointed out that wages continue to rise faster than property prices, suggesting that the gap between earnings and housing costs should gradually narrow, helping affordability improve over time.

The data comes as interest rates rose earlier in the month for the first time since August 2023. The timing is critical for homeowners, as approximately 87% of outstanding mortgages are on fixed-rate deals. According to UK Finance, roughly 2.3 million of these mortgages are due to expire in 2027, potentially exposing millions of households to higher borrowing costs when their deals end.

The figures presented in the index are based on the latest three months of approved mortgage transaction data, sorted from most to least expensive by region.

W.Richard--SMC