House prices set to fall 10% from last year’s high, says OBR, downgrading its prediction
OBR forecast says home prices will fall 10% from last year’s high…before rising again in 2026
- Real estate transactions are expected to be down 20% compared to the last quarter
- Average interest on outstanding mortgages to peak at 4.2% in 2027
According to the Office for Budget Responsibility (OBR), house prices are expected to fall 10 percent from their most recent high before rising again in 2026.
The forecast in the Public Entity’s latest report, published together with today’s spring budget, represents a further 1 percent drop from the last forecast in November.
Real estate transactions will also fall, with a 20 percent drop from the last quarter of 2022.
In its report, the OBR attributes these declines to ‘low consumer confidence, pressure on real incomes and expected increases in mortgage rates’.
The OBR has downgraded its house price forecast, now predicting a 10% fall before rebounding in 2026
Earlier figures from Halifax and Nationwide suggested that home prices have already fallen 3 to 6 percent between their peak in mid-2022 and February 2023.
However, the report contains good news for homeowners concerned about interest rates, as the average rate on outstanding mortgages is expected to peak at 4.2 percent in 2027.
This is 0.8 percentage points lower than forecast in November, suggesting interest rates may not rise as much as previously forecast. Yet the rate is still twice as high as at the end of 2021.
With more than 80 percent of mortgages on fixed-term contracts, it will take several years for the increase in rates on new mortgages in recent months to materialize, the report explains.
Earlier this month, realtor Foxtons said falling mortgage rates could lead to a stronger housing market in the second half of this year.
At the same time, Chancellor Jeremy Hunt remained silent on housing during the spring budget, ignoring calls from landlords and others in the industry for more support after a tumultuous six months.
But despite the uncertainty, homeowners are still nearly £500 better off a year compared to renters, according to Halifax figures today. The monthly cost of owning a home for first-time buyers averages £971. That’s 4 per cent – the equivalent of £42 – lower than the rental price of a comparable property.
Mortgage rates have fallen from late-year highs, but the average of existing loans is expected to rise
Tomer Aboody, director of real estate firm MT Finance, says: ‘The housing market has calmed down after the effects of the mini-budget and thankfully there doesn’t seem to be anything in this budget to upset the apple cart.
“There are fewer transactions as rising interest rates and the cost of living make affordability a bigger issue, but the real concern with transactions is how long they take.
“The OBR forecast of 2.9 percent inflation by the end of the year is very welcome and will have a further smoothing effect on the market if it proves correct. It already looks like interest rates have peaked or are close to peaking, and inflation falling this sharply will help.”
Leveling Up, Housing and Communities Liberal Democrat spokesperson Helen Morgan said the government could have provided further support to homeowners in the current budget.
“People are seeing their house prices fall, but the chancellor’s support is nowhere to be seen,” she said.
“Instead of helping big banks, the government should introduce a Mortgage Protection Fund to protect families and retirees from the government’s rising interest rates.”