UK house prices fell 1.2% in the 12 months to October, taking the average to £296,285, according to the Lloyds house price index—the steepest annual fall recorded since October 2023.

The pace of decline sharpened sharply from the 12 months to September, when the index recorded a fall of only 0.1%. Buyer confidence now faces a separate risk of dropping further after the Bank of England raised interest rates on Thursday, according to property market experts.

What changed in October?

Annual house-price growth diverged across the country, exposing the pressure on the capital and the relative resilience of northern England.

• London: the average price fell 3.1% to £524,892 in the year to October.
• North East: prices grew by 2% in the year to October.
• North West: prices grew by 2.2% in the year to October.

London remained the worst-hit market in the report, which linked its weakness to rising mortgage rates and fears of rampant inflation.

Property market experts said the Bank of England’s rate increase would worsen the outlook. Buyers were holding off in search of better conditions, while sellers were pushing down asking prices to shift their homes.

Andrew Asaam, mortgages director at Lloyds, said: “Renewed inflationary pressures, driven in part by the conflict in the Middle East, are keeping borrowing costs high and adding to the squeeze on household finances, making some buyers understandably more cautious.”

He added: “Looking ahead, conditions are likely to remain subdued in the near term, but we don’t expect this to lead to a sustained period of falling house prices.”

That forecast points to a pause rather than a collapse: subdued conditions can continue without turning the present annual decline into a sustained fall in prices.

Can Help to Buy revive demand?

With housing activity subdued, homebuyers and housebuilders were looking to the government’s revived Help to Buy scheme, which is due to begin in April next year.

The programme offers equity loans (help for first-time buyers to afford deposits) and follows the model of the scheme created by former chancellor George Osborne.

Housebuilders and property experts said it would give the housing market a positive boost, but criticised its delayed start and the £650,000 cap on inner London homes.

Nathan Emerson, chief executive of estate agency trade body Propertymark, said the scheme would “potentially make homeownership more accessible to people across England.”

He warned: “Nevertheless, renewed inflationary concerns and yesterday’s increase in the base rate will continue to weigh on consumer confidence, particularly as households remain mindful of the cost of living.”

The tension is straightforward: targeted deposit assistance can improve access, but the April launch delay, inner-London price cap and higher rates can restrict the number of households able to buy.

How much will the rate rise add to borrowing costs?

Jason Tebb, president of property portal On The Market, said mortgage lenders had already priced in Thursday’s interest-rate increase, making a huge immediate surge in borrowing costs unlikely.

He added: “But with further rate increases expected if inflation continues to rise, this will inevitably result in higher borrowing costs and challenge affordability going forward.”

The immediate shock may therefore be smaller than the rate headline suggests. The continuing risk lies in subsequent increases: if inflation stays high, mortgages cost more, affordability deteriorates and buyers remain cautious.

That leaves a market divided by geography and policy. London’s average price fell 3.1% to £524,892, while the North East and North West grew 2% and 2.2%; demand may remain subdued while buyers and housebuilders wait for the scheme’s April launch.