OBR forecast says house prices could fall 10% from last year’s high… before picking up again in 2026
- Property transactions are expected to drop by 20% compared to the last quarter
- Average rate on outstanding mortgages set to peak at 4.2% in 2027
House prices are set to fall 10 per cent from their most recent high before picking up again in 2026, according to the Office for Budget Responsibility (OBR).
The forecast in the public body’s latest report, released alongside today’s Spring Budget, represents a further 1 per cent drop compared to its last prediction in November.
Property transactions are also set to fall, dropping 20 per cent from compared to the final quarter of 2022.
In its report the OBR put these falls down to ‘low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises’.
The OBR has downgraded its house price prediction now forecasting a 10% fall before picking up again in 2026
Previous figures from Halifax and Nationwide have suggested that house prices have already fallen by 3 to 6 per cent between their peak in the middle of 2022 and February 2023.
However, the report contains some good news for homeowners anxious about interest rates, as it says the average rate on outstanding mortgages is expected to peak at 4.2 per cent in 2027.
This is 0.8 percentage points lower than forecast in November, suggesting that rates might not rise as much as previously predicted. Nevertheless, the rate is still twice as high as it was at the end of 2021.
With more than 80 per cent of mortgages on fixed-term contracts, the increase in rates on new mortgages in recent months will take several years to feed through, the report explains.
Earlier this month estate agency Foxtons said falling mortgage rates could result in a more robust housing sales market during the latter 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 following a tumultuous six months.
Yet despite the uncertainty homeowners are still nearly £500 better off a year compared with renters, according to figures from Halifax today. The monthly cost of owning a home for first-time buyers is £971 on average. That is 4 per cent – the equivalent of £42 – lower than the cost of renting a similar property.
Mortgage rates have come down from the highs seen late last year but the avergae on existing loans is forecast to rise
Tomer Aboody, director at property lender MT Finance, says: ‘The housing market has settled down after the fallout 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 mean affordability is more of an issue but the real concern around transactions is that they are taking so long.
‘The OBR forecast for inflation at 2.9 per cent by the end of the year is extremely welcome and will have a further settling effect on the market should this prove to be accurate. It already looks as though interest rates may have peaked or are close to doing so, and inflation falling so decisively will help with that.’
Liberal Democrat spokesperson for Levelling Up, Housing and Communities Helen Morgan said the Government could have provided further support for homeowners in today’s Budget.
‘People are seeing their house prices tumble, yet support from the Chancellor is nowhere to be seen,’ she said.
‘Rather than helping big banks the Government should introduce a Mortgage Protection Fund to protect families and pensioners from the Government’s spiralling rates.’
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.
This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value
What if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal.
Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to higher mortgage rates limiting people’s borrowing ability.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.
You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check the best fixed rate mortgages you could apply for