UK house prices fall for first time since 2023 as mortgage rates climb

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Borrowers have been warned that more lenders could hike mortgage rates in the coming weeks as borrowing costs rise

Property prices across Britain fell for the first time as mortgage costs surge, with the typical home now valued at £298,468.

The 0.4 per cent annual decline recorded in August represents the first year-on-year drop since November 2023, according to Lloyds Banking Group.

Values also slipped 0.2 per cent compared with the previous month, following a 0.1 per cent monthly fall in July.

Andrew Asaam, mortgages director at Lloyds, said: "The average property now costs £298,468, marking the first annual fall in house prices since November 2023."

Mr Asaam noted that despite the decline, prices remain marginally higher than at the start of the year, with a 0.2 per cent increase since January.

He added that the housing market had encountered a tougher environment in recent months, with global events weighing on inflation and borrowing costs.

The pressure on borrowers is intensifying as swap rates, which lenders use to set mortgage pricing, have climbed to a three-year high.

Turbulence in international bond markets is driving the volatility now rippling through Britain's lending market.

Coventry Building Society was among the first to respond last week by pushing up its rates, and further increases across the industry are anticipated.

According to Moneyfacts, the average two-year fixed rate mortgage now stands at 5.6 per cent, while a typical five-year fix has edged up to 5.64 per cent.

Moneyfacts analyst Caitlyn Eastell said: "These changes have reversed last weeks drops in average rates and it would be fair to assume that more lenders will start hiking rates in the coming weeks, leaving many borrowers feeling disheartened, particularly those due to remortgage."

The Bank of England's Monetary Policy Committee is due to meet again next week, with the property market hoping rates will be held at 3.75 per cent.

At its most recent gathering, the central bank kept borrowing costs unchanged, but the decision was far from unanimous. Three of the nine MPC members voted in favour of a rate rise.

Among the hawks is Huw Pill, the Bank's chief economist, who has argued for swift action. "We cannot wait for uncertainties to resolve themselves before acting," Mr Pill said.

He added: "I see benefit in acting clearly, promptly and decisively. This would cut through the noise inherent in the current uncertain environment in a way that bolsters the clarity and effectiveness of our policy choices."

A hold vote is widely seen as the best outcome the market can realistically expect.

Beneath the national figures lies a stark regional divide. Northern Ireland recorded the strongest growth of any region, with prices climbing 6.9 per cent over the year to a record average of £231,245.

Scotland also performed well, posting annual gains of 3.5 per cent.

Southern England tells a very different story. The South East saw the steepest falls, with values dropping 1.6 per cent, while London declined 1.5 per cent. Prices in the South West and Eastern England each fell 1.2 per cent.

Sarah Coles, head of personal finance at AJ Bell, said: "The North South divide remains striking. There's reasonable growth in the North East and North West, but prices are falling further south."

Ms Coles warned that the malaise appeared to be spreading across the country.

"It's difficult to muster enthusiasm for a purchase when you're faced with having to pay higher monthly mortgage costs for a house that could lose value," Ms Coles said. "It means more buyers are likely to sit tight."

Ian Futcher, a financial planner at Quilter, said: "For first-time buyers who have spent months building a deposit and carefully calculating what they can afford, sudden shifts in mortgage rates can pull the rug from under their feet just as they are preparing to make a move."

Mr Asaam said he expected the market to remain fairly subdued in the coming months, though wage growth and resilient employment should help support demand.

Jason Tebb, president of OnTheMarket, said: "As we head into autumn, and another Budget beckons, political uncertainty and challenging economic conditions continue to form a backdrop to activity."