House prices fall for first time in three years as borrowing costs weigh on buyers

UK house prices declined for the first time in nearly three years in August, as rising borrowing costs deterred prospective buyers, according to Lloyd's house price index. The average property price dropped 0.2 percent to £298,468, marking a 0.4 percent year-on-year decrease, the first negative annual move since November 2023. The Iran war has exacerbated the UK's housing market challenges, with inflation and borrowing costs dampening housing affordability and affecting both buyers and housebuilders.

London experienced the steepest decline, with average prices falling 1.5 percent to £534,177, the second-largest drop nationwide, following the South East region, where prices fell 1.6 percent to £381,729. Property experts note a persistent disparity in house price performance across the UK. August's price decline coincides with the slowest housing market activity in over two years, with mortgage approvals at their lowest level since early 2024.

Housing transactions in July were four percent lower than the previous quarter, according to HMRC data. Andrew Asaam, mortgages director at Lloyds, attributes the market's difficulties to the global impact of inflation and borrowing costs, resulting in economic uncertainty. He predicts the market will remain subdued in the coming months, anticipating the October Budget.

Despite cautious expectations, Asaam believes that increasing wages and stable employment will sustain demand from those seeking to move. Propertymark CEO Nathan Emerson highlights the potential influence of the upcoming Autumn Budget and upcoming inflation figures and interest rate announcements on buyers and sellers' decisions as the year progresses.