UK house prices fell at their fastest annual rate in three years in October, according to mortgage lender Lloyds, as elevated borrowing costs and renewed inflationary pressures weakened buyer demand.
The average UK property price declined to £296,285, representing a 0.6% decrease from September and a 1.2% fall compared with October 2025.
- UK house prices declined 0.6% in October and 1.2% year on year, their steepest annual fall since October 2023, according to Lloyds.
- Average two-year and five-year fixed mortgage rates reached 5.97% and 5.99%, respectively, as the Bank of England raised its benchmark rate to 4%.
- Savills forecasts a further 1.5% decline in 2027, followed by a recovery that could lift average UK property values by 15.8% over the five years to 2031.
The monthly decline was the steepest since August 2023, when prices dropped 1.6%, and marked the fourth consecutive month of falling values.
Economists surveyed by Reuters had expected prices to rise 0.1% during October, which would have been the first monthly increase since June.
Instead, the annual decline accelerated to its largest since October 2023, highlighting the pressure on the housing market as mortgage rates approach 6%.
The figures were published a day after the Bank of England raised interest rates for the first time in more than three years.
Higher mortgage rates weigh on housing demand
The Bank of England’s Monetary Policy Committee voted on 5 November to increase its benchmark interest rate by 0.25 percentage points to 4%.
The decision followed renewed inflationary pressures associated with the prolonged conflict in the Middle East, which has disrupted energy supplies and pushed oil prices above $100 a barrel.
UK consumer price inflation reached 3.5% in September, and the Bank of England expects it to rise to approximately 5% by the middle of 2027.
Higher market borrowing costs and expectations of further interest rate increases have contributed to more expensive mortgage products.
According to Moneyfacts, average fixed mortgage rates were:
- Two-year fixed mortgage: 5.97%.
- Five-year fixed mortgage: 5.99%.
Andrew Asaam, mortgages director at Lloyds, said economic uncertainty and pressure on household finances were making prospective buyers more cautious. He noted that higher energy costs and inflation were adding to existing affordability challenges. However, Asaam said property values had changed relatively little over the preceding two years as the market adjusted to higher interest rates.
Lloyds expects conditions to remain subdued in the coming months but does not anticipate a prolonged period of falling prices.
The lender believes that continued wage growth exceeding property price growth should gradually improve affordability.
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, said buyers remained active but were becoming increasingly selective. She identified homeowners remortgaging and existing buyers seeking larger properties as particularly affected by the higher cost of borrowing.
Reynolds also highlighted the psychological impact of additional interest rate increases, which can lead households to postpone purchasing decisions.
London records the largest annual house price decline
The Lloyds data showed substantial regional differences, with southern England experiencing the greatest downward pressure.
Greater London recorded the largest annual decline, with average property prices falling 3.1% to £524,892.
The South East and South West also experienced significant annual decreases.
| Region | Annual price change | Average property price |
|---|---|---|
| Greater London | -3.1% | £524,892 |
| South East | -2.4% | £379,258 |
| South West | -2.4% | £298,057 |
| UK average | -1.2% | £296,285 |
By contrast, annual house price growth remained comparatively resilient in Northern Ireland, Scotland and Wales.
The regional differences reflect continuing affordability constraints in areas where property values remain high relative to household earnings.
The latest Lloyds figures also differed from Nationwide’s October house price index, which indicated that prices were unchanged during the month and 0.5% higher than a year earlier.
The two lenders use different mortgage data and methodologies to measure property values.
Rightmove reports falling buyer demand and agreed sales
Separate figures from property portal Rightmove reinforced signs of slowing housing market activity.
In a trading update covering the four months to 31 October, the company reported that buyer demand had fallen 10%, while the number of agreed sales declined 9%.
Rightmove attributed the weakness partly to higher mortgage rates and reduced consumer confidence.
Record levels of available housing stock have also created additional downward pressure on asking prices.
The company narrowed its revenue growth expectations towards the lower end of its previous guidance as the difficult market conditions affected its outlook. Rightmove also reported contrasting trends in the rental market. Rental prices were 2.9% higher than a year earlier, while inquiries per available rental property increased.
However, the number of new housing developments advertised on the platform was 6% lower at the end of October compared with the end of 2025.
The company said higher borrowing costs continued to affect demand despite ongoing interest in property from buyers and tenants.
Savills forecasts a further 1.5% house price fall in 2027
Property consultancy Savills expects the UK housing market to remain under pressure throughout 2027 before beginning a recovery in 2028.
Its latest residential property forecast projects that average mainstream UK house prices will fall 1.5% next year, following broadly flat prices across 2026.
The prolonged Middle East conflict has delayed expectations of lower mortgage rates, reducing purchasing power and discouraging housing transactions. Savills expects mortgage rates to remain above 5% until early 2028.
Emily Williams, director of residential research at Savills, said the conflict had postponed meaningful improvements in borrowing affordability. Nevertheless, she does not expect a more severe property market correction.
Many homeowners have already adjusted to higher mortgage costs since 2022, while relatively few borrowers still need to refinance directly from mortgage rates below 2%.
Combined with a resilient labour market, these conditions are expected to limit forced property sales. Savills forecasts a total peak-to-trough decline of approximately 3% before market conditions improve.
UK house prices could rise 15.8% by 2031
Despite the near-term weakness, Savills projects that average UK house prices will rise by a cumulative 15.8%, equivalent to approximately £56,500, over the five years to 2031.
The forecast assumes that economic conditions will improve and mortgage rates will begin declining from 2028.
| Year | Forecast UK house price growth |
|---|---|
| 2026 | 0.0% |
| 2027 | -1.5% |
| 2028 | +3.5% |
| 2029 | +5.0% |
| 2030 | +5.0% |
| 2031 | +3.0% |
| Five years to 2031 | +15.8% |
The projected cumulative increase exceeds Savills’ forecast inflation of 9.8% and nominal income growth of 14.4% over the same five-year period.
Its assumptions, based on Oxford Economics forecasts, include the Bank of England’s base rate reaching 4.25% at the end of 2027 before declining to 3.25% in 2028 and 3% by the end of 2029.
Average mortgage rates are expected to fall from 5.32% at the end of 2026 to 5.09% in 2027 and 4.23% in 2028. They are then projected to stabilise at approximately 4% from 2029 onwards.
Savills expects house price growth to accelerate during the second half of 2028 as lower mortgage costs gradually improve affordability and buyer confidence.
Northern England, Wales and Scotland expected to outperform
Savills forecasts significant differences in regional house price performance through 2031.
London and parts of southern England are expected to experience the largest declines in 2027, while comparatively affordable regions should prove more resilient.
Over the full five-year forecast period, the North West, North East, Scotland, Wales and Yorkshire and the Humber are expected to deliver some of the strongest growth.
| Region | 2027 forecast | Five-year growth to 2031 |
|---|---|---|
| North West | +1.0% | +23.3% |
| North East | +1.0% | +22.2% |
| Scotland | +1.0% | +21.6% |
| Wales | +0.5% | +21.0% |
| Yorkshire and the Humber | +0.5% | +21.0% |
| West Midlands | -1.5% | +16.3% |
| East Midlands | -2.0% | +15.7% |
| South West | -3.0% | +13.5% |
| East of England | -3.5% | +10.7% |
| South East | -3.5% | +9.1% |
| London | -3.5% | +8.1% |
The consultancy noted that average property prices in the three northern English regions remain below six times average earnings.
In London, the equivalent ratio stands at approximately 11.3, making homeownership substantially less affordable. This difference is expected to continue influencing regional price growth.
Savills highlighted Manchester, Leeds, Liverpool and Bristol as markets where employment opportunities, investment and relative affordability could support stronger performance.
Prime London property is also expected to outperform the capital’s mainstream housing market during the second half of the forecast period, following several years of price declines.
First-time buyers expected to lead the recovery
Savills anticipates that first-time buyers will be among the main beneficiaries when mortgage affordability improves from 2028.
Deposit affordability is forecast to reach its strongest level since 2008, supported by income growth, changes to mortgage lending requirements and government housing initiatives.
Relaxed restrictions on high loan-to-value lending, less stringent mortgage stress testing and the planned Your First Home scheme are expected to support demand.
Savills forecasts that first-time buyers could overtake cash purchasers to become the largest buyer group by 2029.
Activity among existing homeowners seeking to move is likely to remain weak until improved affordability releases pent-up demand.
The buy-to-let sector faces a different outlook, with higher taxation, tighter regulation and reduced investment returns expected to limit activity and accelerate the shift towards larger professional landlords.
Property type is also expected to influence market performance. Demand for larger family homes should continue benefiting from flexible working arrangements and changing household preferences.
Flats, meanwhile, face additional pressure from building safety concerns, affordability constraints and greater supply. Savills therefore expects houses to outperform flats during the forecast period.
Although current data indicates a weaker housing market, the consultancy’s longer-term projections suggest a recovery from 2028, with falling mortgage rates and improving household purchasing power supporting renewed activity through 2031.
