London house prices fall 3.1% in a year, the steepest drop since late 2023

London house prices have dropped by 3.1% over the past year, the sharpest annual decline in the capital since November 2023, according to the latest Lloyds Bank index. The average London home now costs £524,892, and the capital is the worst-performing region in the UK.

The figures, covering the 12 months to October, landed a day after the Bank of England raised interest rates by 0.25 percentage points to 4%. That was its first increase in more than three years, and the timing has sharpened worries about buyer confidence.

How London house prices compare with the rest of the UK

The national picture is weak but less severe. The average UK property price slipped 1.2% year on year to £296,285, the biggest annual fall since October 2023. The pace has quickened: in the 12 months to September, prices were down only 0.1%. Between September and October alone, the UK average fell 0.6%, or £1,882.

The map is patchy. Several regions fared far better than the capital, with annual gains in Northern Ireland (4.4%), Scotland (2.8%), the North West (2.2%), the North East (2.0%) and Wales (1.6%). The South East and South West each fell 2.4%, and Eastern England fell 2.3%. Yorkshire and the Humber dropped 1.0%. The East Midlands lost 0.3%, while the West Midlands is listed at a 0.3% change. The regional figures use the latest three months of approved mortgage data.

Why the market is under pressure

Lloyds mortgages director Andrew Asaam pointed to renewed inflationary pressure, partly linked to the conflict in the Middle East. He said it is keeping borrowing costs high and squeezing household budgets, making some buyers more cautious. Prices have changed relatively little over the past couple of years as the market adjusted to higher rates, he added, so a further adjustment is not surprising.

Others were blunter about the mood. Karen Noye of wealth manager Quilter said the market feels like it is “running up the down escalator”, with buyers still moving but finding each step harder. She noted that activity is subdued even though the jobs market is resilient and wages are rising.

Mortgage costs remain a heavy burden. Moneyfacts puts the average two-year fixed rate at 5.97% and the five-year at 5.99%. UK Finance says about 87% of outstanding homeowner mortgages are on fixed rates, so most owners will not feel the latest rise immediately. Those on tracker deals would pay about £30.72 more a month on average. UK Finance also estimates that 2.3 million fixed-rate deals will expire in 2027, which could leave many households facing higher payments.

Jason Tebb, president of property portal On The Market, said lenders had already priced in Thursday’s decision, so a sudden jump in mortgage rates is unlikely. He warned that further rate rises would follow if inflation keeps climbing, and that would hurt affordability.

Is there any good news for buyers?

Lloyds does not expect a prolonged slide. Asaam said conditions are likely to stay subdued in the near term but should not lead to a sustained period of falling prices. He argued that wages are rising faster than property prices, so the gap between earnings and prices should narrow gradually.

First-time buyers may benefit in the meantime. David Hollingworth of L&C Mortgages said they now have time to weigh their options and may be able to negotiate harder. Iain McKenzie of The Guild of Property Professionals told sellers still pricing homes on peak-market expectations that the figures should be a wake-up call, because overpriced properties are struggling to draw serious interest.

Many in the industry are looking ahead to April, when the government plans to relaunch its Help to Buy equity loan scheme for first-time buyers, modelled on the version introduced under former chancellor George Osborne. Housebuilders and property specialists expect it to lift the market. They have criticised the delayed start and the £650,000 price cap on inner London homes, which could limit its reach in the capital. Nathan Emerson, chief executive of Propertymark, said it could make ownership more accessible across England. He cautioned that inflation worries and the rate rise will continue to weigh on confidence.

For now, London house prices are caught between higher borrowing costs and cautious buyers. Whether the market stabilises may depend on how far inflation and interest rates move from here.

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