- There is an anticipated 20% decrease in property transactions compared to the previous quarter.
- The average rate on outstanding mortgages is projected to reach its highest point at 4.2% in 2027.
OBR Predicts 10% Drop in UK House Prices Followed by 2026 Rebound
The Office for Budget Responsibility (OBR) has released its latest report, accompanying today’s Spring Budget, which predicts a 10% decrease in house prices from their recent peak, followed by a rebound in 2026. This forecast marks a 1% decrease compared to the OBR’s last prediction in November. The report also indicates a projected 20% decrease in property transactions from the final quarter of 2022, which the OBR attributes to factors such as low consumer confidence, a reduction in real incomes, and the expectation of mortgage rate increases.
According to previous reports from Halifax and Nationwide, house prices have decreased by 3 to 6% since their peak in mid-2022, as of February 2023.
Fortunately, for homeowners concerned about interest rates, the report contains positive news as it predicts the average rate on outstanding mortgages to reach a peak of 4.2% in 2027. This is 0.8 percentage points lower than the November forecast, indicating that rates may not rise as much as previously anticipated. However, the rate is still twice as high as it was at the end of 2021.
The report clarifies that since over 80% of mortgages are on fixed-term contracts, the recent increase in rates for new mortgages will take several years to impact the market.
Foxtons Predicts Resilient UK Housing Market as Mortgage Rates Decline
In a recent statement, estate agency Foxtons suggested that the declining mortgage rates may lead to a more resilient housing sales market during the latter half of the year.
Despite the housing industry’s appeals for more support following a turbulent six months, Chancellor Jeremy Hunt remained quiet on the issue during the Spring Budget.
Nonetheless, according to today’s figures from Halifax, homeowners are still approximately £500 better off per year than renters. The average monthly cost of owning a home for first-time buyers is £971, which is 4% lower than the equivalent cost of renting a similar property.
Housing Market Stabilises After UK Budget, Says Property Lender Director
According to Tomer Aboody, the director of property lender MT Finance, the housing market has stabilised following the mini-Budget’s consequences, and there is no indication of anything in the current Budget that will disrupt it. The number of transactions has declined due to increased interest rates and living expenses, making affordability a bigger concern. However, the more significant problem is that transactions are taking longer.
The OBR’s prediction of inflation at 2.9% by the end of the year is good news and could further stabilise the market if proven accurate. Interest rates seem to have already reached their peak or are close to doing so, and a decisive fall in inflation will help with this.
Helen Morgan, the Liberal Democrat spokesperson for Levelling Up, Housing, and Communities, expressed disappointment that the government did not provide more assistance to homeowners in the current Budget. “People are witnessing their house prices drop, yet the Chancellor is not providing any assistance,” she remarked. Rather than assisting large banks, the government should establish a Mortgage Protection Fund to safeguard families and seniors from the government’s rising rates.
