Budget Silver Lining - house prices to fall less than expected

One piece of good news to come out of the small print documents accompanying the Budget concerns capital appreciation.

The Office for Budget Responsibility says house prices will fall less than previously forecast in 2024 and mortgage rates are also predicted to rise less steeply.

Typical house prices are forecast to fall by two per cent this year - much less than the five per cent predicted by the OBR just four months ago.

The independent OBR says the average house price is now forecast to fall to just below £275,000 in the final quarter of the year, with the lower-than-anticipated fall due to lower mortgage rate expectations.

House prices will continue their dip into 2025, before returning to growth in 2026, increasing by two per cent and then rising by 3.5 per cent in each of 2027 and 2028 as mortgage rates drop still further.

By 2029, the OBR predicts that the average house price will have risen to more than £300,000, having passed the previous peak of £285,000 in the first quarter of 2027.

The OBR suggests average mortgage interest rates will be some 4.2 per cent in 2027, again 0.8 percentage points lower than the OBR forecast made in November.

”There are significant risks to our mortgage rate forecast, demonstrated by the large movements in bank rate expectations since November. This also poses a risk to household incomes, residential housing transactions and house prices” says the office. 

Housing transactions have declined by more than 40 per cent to 265,000 in the third quarter of last year, compared with the post-pandemic peak, as the Bank rate increased. The OBR says it expects housing transactions to remain roughly flat this year, having previously forecast a decline of seven per cent.

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