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According to the Office of Budget Responsibility (OBR), house prices will fall by about 9 percent between the end of this year and September 2024.
The change, which follows a period of record highs, will be driven by rising mortgage rates and tougher economic conditions.
The OBR’s Economic and Fiscal Outlook report, published alongside the chancellor’s fall statement, says average interest rates on outstanding mortgages will peak at 5 percent in the second half of 2024.
This is the highest average rate since 2008 and 1.8 percentage points above the peak predicted by the OBR in its March forecast. The average rate will then drop slightly to 4.6 percent in 2028 when the forecast comes to an end.
Ups and downs: The OBR has said house prices will fall 9% next year before rising again in 2026 and beyond
However, the forecast notes that due to the relatively large share of fixed-rate mortgages (around 83 percent in Q2 2022 compared to just 51 percent in 2007), higher rates on new mortgages will take time to feed through to the end of the year. averages.
As the economy recovers, according to the OBR, house prices will rise slightly faster than incomes from 2025 (about 2.6 percent annually) and the house price to earnings ratio will be around 7.
The projections are based on quarterly peak-to-trough measurements, which predict the highest and lowest house price growth rates in each three-month period.
This is slightly more optimistic than real estate agent Savills’ forecast, which predicted house prices will fall by 10 percent next year and rise by 1 percent in 2024.
As recently as May, the broker predicted only a 1 percent drop in 2023, but the sharp rise in mortgage rates has led to a gloomier outlook.
Rate hikes: Mortgage rates rose rapidly in the second half of the year, but will decline in the coming years, according to the OBR
However, the OBR added a caveat to its forecast, adding “there is significant uncertainty about this forecast given the sensitivity of home prices to mortgage rates and the recent volatility in bond yields that drive prices in the mortgage market.”
In its financial years, the OBR forecasts house prices to fall by 4.2 percent in 2023-2024 and 4.0 percent in 2024-25, before rebounding to 2.1 percent growth in 2025-26.
The increase in house prices fell from 13.1 percent in August to 9.5 percent in September, according to the latest ONS figures.
Where will mortgage interest go?
After the September mini-budget, gold-plated government bond yields skyrocketed, raising the cost of borrowing for banks.
In response, lenders raised their own mortgage rates to ensure they didn’t fall short of the surge in credit costs by passing it on to their customers.
Before the mini-Budget on Friday, Sept. 23, the average two-year fixed rate across all loan-to-value brackets was 4.74 percent and the five-year fixed rate was 4.75 percent, according to Moneyfacts.
Today these are 6.23 percent and 6.04 percent respectively. However, both two-year and five-year fixed rates are down from last month’s peak of 6.65 percent and 6.51 percent for two- and five-year fixed-rate averages.
Falling: Mortgage rates have continued to fall since mid-October, with the two-year average fixed rate now at 6.23% for all LTVs according to Moneyfacts
And rates continue to fall. Skipton Building Society has now launched a three-year fixed rate agreement at a 60 per cent loan-to-value ratio with an interest rate of 5.03 per cent.
The Cooperative Bank has a two-year fixed rate mortgage at 80 percent LTV for 5.89 percent.
Higher mortgage rates and falling house prices are two of the trends that the OBR predicts will depress consumption and investment in the UK.
Continued pressure on real incomes and rising interest rates will also contribute to pushing the economy into a recession lasting just over a year from the third quarter of 2022, the report said.
In his fall statement, Hunt said his fiscal plan will mean the recession will be “deeper and shorter” than previously predicted.
In a surprise move, Hunt announced that the stamp duty cut that former Chancellor Kwasi Kwarteng introduced into his ill-fated mini-budget in September is only temporary and will end on March 31, 2025.
Kwarteng had lowered the house price threshold below which buyers do not have to pay stamp duty from £125,000 to £250,000.
It meant movers would save up to £2,500, and every year 200,000 homebuyers would pay no stamp duty at all.
But today it was announced that the increased tax credit will be phased out from spring next year.
Find out below how much stamp duty you would pay under the current system.
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