UK house prices fall 0.4% annually in first decline since November 2023
UK house prices recorded their first annual decline since November 2023, falling 0.4% in August compared to the same month last year, according to data from Lloyds Bank. The average property value now stands at £298,468.
The drop represents a significant miss against economist expectations. A Reuters survey had forecast a 0.2% annual rise, making the actual decline a larger negative surprise than the market anticipated.
Despite the annual fall, prices remain marginally higher than at the beginning of 2026, up 0.2% since January. This suggests the market has softened through the summer months rather than experiencing a dramatic collapse.
Mortgage rates remain elevated amid bond market turmoil
The housing market continues to face pressure from elevated borrowing costs. Average two-year fixed mortgage rates currently stand at 5.59%, while five-year fixes are available at 5.63%, according to Moneyfacts data.
Recent bond market turbulence has compounded the challenge for prospective buyers. Five-year swap rates, which influence mortgage pricing, surged above 4.52% in early September, reaching their highest level since October 2023. The spike has been driven by geopolitical tensions, including the US-Iran conflict and rising oil prices.
In response to these financial market movements, five major lenders have raised their mortgage rates in recent days, further squeezing affordability for borrowers.
Bank of England holds rates amid inflation concerns
The Bank of England maintained its base rate at 3.75% at its July meeting, following three cuts throughout 2025 that brought rates down from 4.75% at the start of last year. The decision was not unanimous, with three members of the Monetary Policy Committee voting to raise rates to 4%.
Current inflation stands at 2.6%, above the Bank's 2% target. After briefly dropping below target in September 2024, price pressures have built again, constraining the central bank's ability to provide further monetary easing. The next rate decision is scheduled for 17 September.
Sharp regional variations across the UK
The national figures mask substantial regional differences in housing market performance. Northern Ireland recorded the strongest annual growth at 6.9%, while Scotland saw prices rise 3.5%.
Southern England bore the brunt of the downturn. The South East experienced a 1.6% annual decline, Greater London fell 1.5%, and both the South West and Eastern England dropped 1.2%.
Historical context shows modest decline
The last time UK house prices fell on an annual basis was in November 2023, when values dropped 2.1% according to Office for National Statistics data. That represented the sharpest annual fall since 2011, with average prices at £285,000.
The current 0.4% decline is considerably more modest, suggesting the market is experiencing a gradual cooling rather than the sharper corrections seen in previous downturns. However, with mortgage rates remaining elevated and economic uncertainty persisting, the outlook for the remainder of 2026 remains uncertain.
