The average house price was £3,000 lower in October than a year earlier, according to the Office for National Statistics (ONS).
The figures were released as a separate ONS report indicated that private rental prices have been rising at a record rate.
Within London, house prices have been falling at the fastest rate since 2009, while private rental prices have been rising at their fastest pace since at least 2006.
Across the UK, property values fell by 1.2% on average in the 12 months to October 2023.
This was a steeper decline than the decrease of 0.6% recorded in the 12 months to September 2023.
Annual growth in house prices has been generally slowing since July 2022, when it was 13.8%.
The average UK house price was £288,000 in October 2023 – £3,000 lower than 12 months earlier.
Average house prices over the 12 months to October 2023 fell in England to £306,000 (falling by 1.4%) and also decreased in Wales to £214,000 (falling by 3.0%), but increased in Scotland to £191,000 (a 0.2% increase).
Average house prices also increased by 2.1% annually in Northern Ireland, reaching £180,000.
In England, the North East was the only region which recorded an increase in average house prices in the 12 months to October 2023 (0.2%), while London recorded the biggest fall (a 3.6% decrease).
ONS head of housing market indices Aimee North said: “London saw the steepest fall in average house prices and its annual inflation rate now stands at its lowest level since 2009.
“While housing prices are generally falling, the surge in rental prices continues with another record-breaking increase in the year to November.”
The ONS’s latest report cautioned that house sales used to calculate the index have been considerably lower recently than historically. This may lead to revisions being larger than usual in the coming months.
Meanwhile, its rental sector report said that private rental prices paid by tenants in the UK rose by 6.2% in the 12 months to November 2023, accelerating from 6.1% in the 12 months to October 2023.
The 6.2% rise represents the largest annual percentage change since the UK records started in January 2016.
In London, rents rose by 6.9% annually – the highest annual percentage change in private rental prices since the London records started in January 2006.
The ONS also released figures on Wednesday showing that UK inflation eased back to its lowest level for more than two years last month.
The rate of CPI (Consumer Prices Index) inflation slowed to 3.9% in November, from 4.6% in October – the lowest level since September 2021. The latest figure was lower than many economists had been expecting.
Nicky Stevenson, managing director at estate agent Fine & Country, said: “After a bumpy start to 2023, the property market is looking increasingly buoyant, and today’s steeper than expected drop in inflation is likely to drive greater activity in the early part of next year.”
Andrew Montlake, MD of Coreco mortgage brokers, said: “The latest fall in inflation will bring some early Christmas cheer to both policy makers and consumers alike.
“This will no doubt have an impact on swap rates which in turn will allow mortgage lenders to continue to reduce their product offerings as the January mortgage sales look set to become even more intense.”
Mr Montlake also suggested that the Bank of England base rate could be cut “sooner rather than later”, adding: “This also has implications for the property market as a whole and we could see prospective buyers return to the market in earnest early next year.”
Nick Leeming, chairman of estate agent Jackson-Stops, said “a minimal drop of just 1%” annually in the average UK house price “is the clearest example of the property market’s enduring strength despite riding the real estate rollercoaster”.
He continued: “What we expect to see is a minor reduction in property values overall next year, but no great dips as we have seen from 2023 the strength that underpins our bricks and mortar.
“Some house prices will be back in line with pre-pandemic levels, allowing for a fairer playing field for both buyers and sellers. With the prospect of interest rates going down next year and a greater pipeline of supply emerging in the spring, there is reason to expect a stronger market as the year progresses.”
He said that, with the prospect of a general election on the horizon, “this may prompt more buyers and sellers to sit and wait, with pre-election uncertainty often impacting domestic economic confidence. It is important that throughout the year, sellers continue to accept realistic valuations, reflecting a market that has greater competition once again.”
Some house prices will be back in line with pre-pandemic levels, allowing for a fairer playing field for both buyers and sellers— Nick Leeming, Jackson-Stops
Jeremy Leaf, a north London estate agent, said: “Buyers and sellers are taking heart from the pause in interest rate rises and falls in mortgage payments and inflation, as well as continuing strong employment.
“Looking forward, the signs for the new year are more promising than they may have been only a few short months ago.”
Steven Hargreaves, mortgage and protection adviser at Leeds-based broker the Mortgage Co, told website Newspage: “We are seeing an increase in first-time buyer inquiries, which is very encouraging, especially in comparison to the previous 12 months. Increased confidence due to falling inflation and lower mortgage rates is having a material impact on first-time buyers returning to the market.
“Supply is still an issue, however, traditionally we do not have an influx of new properties to the market until early January.”
