LONDON, Nov 6 (Reuters) - British house prices fell last month at the fastest annual pace since October 2023, data from mortgage lender Lloyds showed on Friday, adding to signs of waning momentum as surging mortgage costs caused by the Iran war squeezed prospective buyers.
House prices dropped 1.2% year-on-year in October, the biggest annual drop since October 2023, Lloyds said, and a bigger fall than all forecasts in a Reuters poll of economists.
On a monthly basis, prices unexpectedly fell by 0.6%
in October after a 0.1% decline in September. The poll had pointed to a 0.1% rise on the month.
"Housing demand is currently being tested by a challenging economic backdrop," said Andrew Asaam, mortgages director at Lloyds.
"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."
British mortgage rates have climbed sharply since the start of the U.S.-Israeli war on Iran due to rising market borrowing costs for lenders and expectations of future BoE hikes.
The Bank of England on Thursday raised interest rates for the first time in more than three years and investors are pricing in more hikes in 2027.
Asaam said he expected the sector to remain subdued in the coming months, but did not expect to see a sustained period of falling house prices.
Friday's data contrasted with figures published by mortgage lender Nationwide last week which showed house prices stagnated in October, taking annual house price inflation to 0.5%.
(Reporting by Suban Abdulla; editing by Sarah Young)
