The decline follows the Bank of England’s monetary policy committee decision to raise the base rate by a quarter of a point to 4%, the first increase in three years. Officials cited inflationary pressures driven partly by the conflict in the Middle East, which has pushed oil prices above $100 a barrel and contributed to September inflation reaching 3.5%. Andrew Asaam, mortgages director at Lloyds, stated that these renewed inflationary pressures are keeping borrowing costs high and squeezing household finances, making buyers more cautious. The average two-year fixed mortgage rate stood at 5.97%, while the five-year fixed rate was 5.99%, according to Moneyfacts.
Regional data highlights growing pressure in the south of England. Greater London recorded the largest annual decline, with prices falling 3.1% year-on-year to an average of £524,892. The south-east and south-west of England saw annual declines of 2.4% to £379,258 and £298,057, respectively. In contrast, annual house price growth remains relatively strong in Northern Ireland, Scotland, and Wales. Amy Reynolds, head of sales at Antony Roberts, noted that the market has lost momentum heading into year-end, with the “real damage” being psychological as buyers hesitate over rising borrowing costs. Those most affected are remortgagers and second-steppers seeking larger homes.
Market participants are adjusting their outlooks in response to the slowdown. The online property portal Rightmove downgraded its revenue and profit growth expectations to the lower end of its guidance for the four months to 31 October. The company reported that high mortgage rates resulted in a 10% fall in buyer demand and a 9% drop in agreed sales, with record numbers of homes on the market creating downward price pressure. Meanwhile, the rental market saw inquiries per property rise, with rental prices up 2.9% year-on-year, though new listings fell by 6% compared with the end of last year.
Analysts suggest the market is adjusting rather than collapsing. Lloyds does not anticipate a sustained downward correction, noting that house prices have changed relatively little over the past two years as the market adjusted to higher rates. Asaam indicated that the affordability gap should gradually narrow as wage growth continues to outpace property price declines. However, the property services company Savills warned that Britain’s sluggish housing market is not expected to recover until 2028. Jeremy Leaf, a former RICS residential chairman, warned that the recent base rate rise will not help an already flat market, though he expects some activity to return as lenders begin trimming rates in a price-sensitive environment.
