UK House Prices Slip as Mortgage Costs Rise

UK house prices recorded their first annual decline in the Lloyds index in almost three years in August, falling 0.4% from a year earlier and 0.2% from July to an average £298,468. Mortgage costs are rising again at the same time: by Sept. 9, the average two-year fixed rate had reached 5.67% and the average five-year rate 5.71%. The pressure is most visible in London and southern England, where high property values make buyers particularly sensitive to borrowing costs.

UK house prices record first annual fall since 2023

The Lloyds House Price Index turned negative on an annual basis for the first time since November 2023. The average UK property was valued at £298,468 in August, down from £299,153 in July. Prices fell 0.2% month on month and 0.4% year on year, although they remained about 0.2% higher than at the beginning of 2026.

The decline remains modest in a longer-term context. Average prices are still around 25% above their level at the end of 2019. Lloyds said there was little evidence of homeowners rushing to cut prices, with some sellers refusing offers they considered too low while potential buyers waited for greater economic clarity.

Bloomberg highlighted the renewed pressure from mortgage costs on Sept. 9, as more expensive financing compounded an affordability problem created by years of high property prices.

UK mortgage rates rise again in September

Mortgage pricing began to deteriorate again after a relatively calmer summer. Moneyfacts data showed the average two-year fixed rate at 5.67% on Sept. 9 and the average five-year fix at 5.71%. On Sept. 4, they had stood at 5.60% and 5.64%, respectively.

The cheapest widely available deals remained below those averages. The lowest two-year fixed rate was 4.52%, while the lowest five-year rate was 4.55%, although such products typically require substantial deposits and may carry product fees.

The increase followed a rise in swap rates, financial-market rates that influence how lenders price fixed mortgages. During the first week of September, the average two-year fixed rate rose by 0.04 percentage point to 5.63%, its highest level in almost a month.

Deposit size is increasingly important

Borrowing costs vary significantly according to loan-to-value, or LTV, which measures the mortgage as a percentage of the property's value.

Rightmove and mortgage-data provider Podium put the average two-year fixed rate at 4.69% for a 60% LTV mortgage on Sept. 9. The rate rose to 5.01% at 75% LTV, 5.29% at 90% and 5.75% at 95%. Five-year averages ranged from 4.73% at 60% LTV to 5.72% at 95%.

Rightmove's broader averages differ from Moneyfacts because the two datasets use different samples and methodologies. Rightmove, whose data cover about 95% of the mortgage market while excluding some specialist lenders, put the average two-year fix at 5.15% and the five-year rate at 5.17% on Sept. 9.

At an average asking price of £364,999, an 80% mortgage at a 5.06% rate would generate a monthly repayment of about £1,717 over 25 years. A typical first-time buyer property outside London, priced at £225,525, would require a payment of about £1,193 a month with a 90% mortgage under the same assumptions.

Bank Rate remains at 3.75%

The Bank of England has kept Bank Rate at 3.75%. At the meeting ending July 29, six members of the Monetary Policy Committee voted to hold rates, while three preferred a quarter-point increase to 4%.

Consumer-price inflation had fallen to 2.6%, although policymakers expected it to rise again later in the year as higher energy costs passed through to the economy. The next Bank Rate decision is due on Sept. 17.

Fixed mortgage rates do not move mechanically with Bank Rate. They are also driven by expectations for future policy, bond yields, swap rates, lenders' funding costs and competition between mortgage providers. They can therefore rise even while the central bank leaves its headline rate unchanged.

Mortgage approvals lose momentum

Higher borrowing costs are already visible in mortgage activity. UK lenders approved about 56,100 mortgages for house purchases in July, down from 58,200 in June and below the roughly 60,800 average of the previous six months.

Net mortgage borrowing dropped to £4.3 billion from £7.7 billion in June. The effective interest rate actually paid on newly drawn mortgages rose to 4.45% from 4.35%.

Remortgage approvals with a different lender edged higher to 34,500 from 34,100.

High-LTV lending reaches its largest share since 2008

The wider mortgage market is still expanding despite weaker purchase approvals over the summer. The outstanding value of residential mortgage loans reached £1.7606 trillion in the second quarter, up 3.1% from a year earlier.

Gross mortgage advances totaled £77.4 billion, 11.1% more than in the previous quarter and 31.7% above the level a year earlier.

Loans exceeding 90% of a property's value accounted for 8.4% of gross advances, the largest share since the second quarter of 2008.

Those borrowers are particularly exposed to higher rates because they finance a larger share of the purchase price and typically face more expensive mortgage products.

London and southern England lead the declines

The national average conceals an increasingly divided regional market. South East England recorded the largest annual decline in the Lloyds index, with prices down 1.6% to £381,729. Greater London fell 1.5% to £534,177, while Eastern England and the South West both declined 1.2%.

Northern markets remained stronger. Prices rose 2.7% in the North East to £184,370 and 2% in the North West to £248,675.

Scotland recorded a 3.5% increase to £223,437, while Northern Ireland remained the strongest market, with annual growth of 6.9% taking the average property price to a record £231,245.

Affordability helps explain the divergence. At the same mortgage rate, a buyer purchasing a property worth more than £500,000 needs substantially more financing than one buying a home for £200,000 to £250,000. Rising borrowing costs therefore bite faster in expensive markets.

Higher supply gives buyers more leverage

Asking prices are also coming under pressure. The average price of a newly listed property fell 2% in August to £364,999 and was 1% below the level a year earlier.

London recorded a much steeper monthly fall of 4.4%, taking its average asking price to £646,451, down 3.1% from August 2025. The number of properties available for sale across Great Britain was the highest for the time of year since 2014.

The average London seller needed 73 days to find a buyer, compared with 52 days in the North East and 56 in the North West.

Demand did show some improvement at the beginning of September, rising 5% in the first week of the month, stronger than the average seasonal increase over the previous five years. That suggests a weak market rather than a complete withdrawal of buyers.

Completed property transactions remain subdued

The UK recorded a provisional 96,710 seasonally adjusted residential property transactions in July. That was 2% lower than in June and 1% below July 2025.

On a non-seasonally adjusted basis, transactions reached 106,620, up 5% from a year earlier. HM Revenue & Customs notes that completed transaction data lag current market conditions because completion typically takes place two to four months after an initial offer is made.

Demand is stabilising from weak levels

The Royal Institution of Chartered Surveyors' August survey showed some improvement from the spring downturn, although the main measures remained negative.

The net balance for new buyer enquiries improved to minus 19% from minus 28% in July, its least negative reading since January. Agreed sales improved to minus 17%, while the headline house-price balance stood at minus 28%, meaning more surveyors continued to report falling prices than increases.

Three-month sales expectations improved to minus 3%, while the 12-month measure rose to plus 6%. London remained weaker than the national average, while Northern Ireland continued to report rising prices.

UK price indices still send different signals

The Lloyds decline does not yet amount to evidence of a uniform nationwide fall because the main house-price indices use different samples and methodologies.

Nationwide reported a 0.2% monthly increase in August and annual growth of 1.6%, taking its average house price to £275,465. Its index is based on mortgages issued by Nationwide and therefore covers a different sample from Lloyds.

The latest official transaction-based index currently covers June. It put the average UK property price at £272,000, 2% higher than a year earlier. London moved in the opposite direction, falling 2.5% to £553,870, its tenth consecutive month of annual declines.

The evidence therefore points more clearly to a cooling and increasingly fragmented market than to a nationwide property downturn. The consistent signals are expensive mortgages, weak transaction activity, ample choice for buyers and stronger downward pressure in the most expensive southern markets.

As International Investment experts report, Lloyds' 0.4% annual decline is still too small to indicate a UK housing crisis. Affordability is the more significant risk: property prices remain around a quarter above their end-2019 level while mortgage rates are rising again. London and southern England are particularly exposed because their high property values require larger loans. If financing becomes more expensive while supply remains elevated, more sellers may have to revise their price expectations. Northern England and Northern Ireland are so far proving more resilient because lower property values leave buyers less exposed to the same level of mortgage-rate pressure.

FAQ: UK Housing and Mortgage Market

Are UK house prices falling in 2026?

The Lloyds index showed a 0.4% annual decline in August, the first since November 2023. Nationwide reported annual growth of 1.6% for the same month, so the main indices are currently giving different signals.

What is the average UK house price?

Lloyds put the average at £298,468 in August. The latest official completed-transactions index estimated the UK average at £272,000 in June.

What are UK mortgage rates in September 2026?

Moneyfacts put the average two-year fixed rate at 5.67% and the average five-year fix at 5.71% on Sept. 9. Rates available to individual borrowers vary according to deposit size, mortgage type and borrower circumstances.

Why are mortgage rates rising while Bank Rate is unchanged?

Fixed mortgage pricing depends on expected future interest rates, bond markets, swap rates and lenders' own funding costs as well as Bank Rate. Those market indicators can move before the central bank changes policy.

Where are UK house prices falling fastest?

The Lloyds August index showed the largest annual decline in South East England at 1.6%. Greater London prices fell 1.5%.

Where are house prices still rising?

Northern Ireland recorded the strongest annual growth at 6.9%, followed by Scotland at 3.5%. The North East of England rose 2.7% and the North West 2%.

Why is London under greater pressure?

London property prices are much higher than the national average, meaning buyers generally require larger mortgages. Higher interest rates therefore have a greater impact on affordability. Buyers also have a relatively wide choice of properties.

What could happen to UK house prices next?

Mortgage rates, household incomes, employment and housing supply will be the main drivers. If borrowing costs remain around current levels, rapid price growth is likely to remain difficult, particularly in higher-priced regions.