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House prices set to fall 10% from last year's high, says OBR, downgrading its prediction

The OBR has lowered its house price forecast now forecasting a 10% drop before recovering in 2026

House prices could drop 10% from last year’s peak, says OBR, before rising again in 2026

  • Real estate transactions expected to drop 20% from last quarter
  • The average rate of outstanding mortgages should peak at 4.2% in 2027

According to the Office for Budget Responsibility (OBR), house prices are expected to fall 10% from their most recent peak before rising again in 2026.

The forecast in the public body’s latest report, released alongside today’s spring budget, represents a further drop of 1% from its last forecast in November.

Real estate transactions are also expected to fall, falling 20% ​​from the last quarter of 2022.

In its report, the OBR attributes the declines to “weak consumer confidence, squeezed real incomes and the expectation of higher mortgage rates”.

The OBR has lowered its house price forecast now forecasting a 10% drop before recovering in 2026

The OBR has lowered its house price forecast now forecasting a 10% drop before recovering in 2026

Earlier figures from Halifax and Nationwide suggested that house prices have already fallen 3-6% between their peak in mid-2022 and February 2023.

However, the report contains good news for homeowners worried about interest rates, as it indicates that the average outstanding mortgage rate is expected to peak at 4.2% in 2027.

That’s 0.8 percentage points lower than expected in November, suggesting rates may not rise as much as previously expected. Nevertheless, the rate is still twice as high as it was at the end of 2021.

With more than 80% fixed-term mortgages, the rise in new loan rates in recent months will take several years to materialize, the report explains.

Earlier this month, estate agency Foxtons said lower mortgage rates could lead to a more robust home sales market in the second half of this year.

Meanwhile, Chancellor Jeremy Hunt remained silent on housing during the spring budget, ignoring pleas from landlords and other industry players for more support after a tumultuous six months.

Yet despite the uncertainty, homeowners are still earning nearly £500 a year compared to renters, figures from Halifax today show. The monthly cost of owning a home for first time buyers is £971 on average. That’s 4% – the equivalent of £42 – less than the rental cost of a similar property.

Mortgage rates have fallen from highs seen late last year, but average existing loans are expected to rise

Mortgage rates have fallen from highs seen late last year, but average existing loans are expected to rise

Tomer Aboody, director of property lender MT Finance, said: “The housing market has calmed down following the fallout from the mini-budget and thankfully there does not appear to be anything in this budget to disrupt the apple basket.

“There are fewer transactions as rising interest rates and the cost of living mean affordability is more of an issue, but the real concern about transactions is that they are taking so long.

“The OBR’s forecast for inflation of 2.9% by the end of the year is extremely welcome and will have an additional stabilizing effect on the market if it proves to be correct. Interest rates already appear to have peaked or are on the verge of peaking, and such a decisive drop in inflation will contribute to this.

Liberal Democrat spokeswoman for leveling, housing and communities, Helen Morgan, said the government could have provided additional support for homeowners in today’s budget.

“People are seeing their house prices fall, but the Chancellor’s support is nowhere to be found,” she said.

“Rather than helping the big banks, the government should introduce a mortgage protection fund to protect families and pensioners from spiraling government rates.”

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed rate contract is coming to an end or because they have agreed to buy a home should explore their options as soon as possible.

This is Money’s best mortgage rate calculator, powered by L&C, that 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 get a rate.

Anyone with a fixed-rate deal ending in the next six to nine months should consider how much it would cost them to remortgage now — and consider entering into a new deal.

Most mortgage transactions allow fees to be added to the loan and they are then only charged at the time of subscription. By doing so, borrowers can secure a rate without paying costly arrangement fees.

What if I buy a house?

Those who have agreed to buy a home should also aim to get quotes as soon as possible, so they know exactly what their monthly payments will be.

Homebuyers should be wary of overstretching and prepare for the possibility of home prices falling from their current high levels, due to higher mortgage rates limiting people’s ability to borrow.

How to Compare Mortgage Costs

The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.

You can use our best mortgage rate calculator to view offers that match your home’s 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, compare rates and then speak to a broker as soon as possible, so they can help you find the loan mortgage that’s right for you.

> Check out the best fixed rate mortgages you could apply for

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