Fall statement: Home prices are down 9% over two years, according to OBR

Home prices will fall about 9 percent between the end of this year and September 2024, according to the Office for Budget Responsibility (OBR).

The change, which comes after a period of record highs, will be driven by higher mortgage rates and tough economic conditions.

OBR’s Economic and Financial Outlook, published alongside the advisor’s fall statement, says average interest rates on outstanding mortgages will peak at 5 per cent in the second half of 2024.

This is the highest average rate since 2008 and 1.8 percentage points above the peak projected by the Office for Budget Responsibility in its March outlook. The average rate will then drop slightly to 4.6 percent by 2028 when the forecasts end.

The ups and downs: House prices will fall 9% next year, the Office for Budget Responsibility said, before rising again through 2026 and beyond.

However, projections are that because of the relatively large share of fixed-rate mortgages (about 83 percent in the second quarter of 2022 compared to just 51 percent in 2007), higher rates on new mortgages take time to feed off. through averages.

As the economy recovers, the balance sheet office says home prices will rise slightly faster than income from 2025 (at about 2.6 percent annually) and the home price-to-earnings ratio will stabilize at around 7.

The projections are based on quarterly peak-to-bottom measurements, which forecast the highest and lowest house price growth numbers in each quarter.

That’s a little more optimistic than the prediction from real estate agency Savills, which predicted home prices would fall 10 percent next year before rising 1 percent in 2024.

As recently as May, the real estate agent was only forecasting a 1 percent drop in 2023, but a sharp increase in mortgage rates has led to an even bleaker outlook.

Rising interest rates: Mortgage rates rose rapidly in the second half of the year but are set to decline in coming years according to the Balance Sheet Office.

Rising interest rates: Mortgage rates rose rapidly in the second half of the year but are set to decline in coming years according to the Balance Sheet Office.

However, the Balance Sheet Office added a caveat to its forecast, adding “there is significant uncertainty about this forecast given the sensitivity of house prices to mortgage rates and recent volatility in bond yields driving pricing in the mortgage market.”

In its fiscal years data, OBR projects house prices will decline 4.2 percent in 2023-24 and 4.0 percent in 2024-25, before rebounding to 2.1 percent growth in 2025-26.

House price growth fell to 9.5 percent in September from 13.1 percent in August, according to the latest Office for National Statistics figures.

Where are mortgage rates headed?

In the aftermath of the September mini budget, gold yields soared, driving up the cost of borrowing for banks.

In response, lenders raised their mortgage rates, ensuring that they did not default due to the sharp increase in the cost of credit by passing it on to their customers.

Before the Friday, Sept. 23 mini budget, the average two-year fixed interest rate across all loan-to-value categories was 4.74 percent, and the five-year fix was 4.75 percent, according to Moneyfacts.

Today, that percentage is 6.23 percent and 6.04 percent, respectively. However, the two- and five-year constant rates are down from last month’s peak of 6.65 percent and 6.51 percent for the two- and five-year constant rates.

Downward: Mortgage rates have continued to fall since mid-October with the average two-year fixed rate now at 6.23% across all long-term mortgages according to Moneyfacts

Downward: Mortgage rates have continued to fall since mid-October with the average two-year fixed rate now at 6.23% across all long-term mortgages according to Moneyfacts

And rates continue to fall. Skipton Building Society has now launched a three year fixed rate deal of 60 per cent loan to value rate of 5.03 per cent.

The Co-operative Bank has a two-year fixed mortgage rate of 80 per cent for 5.89 per cent.

Rising mortgage rates and falling house prices are two of the trends that the Office for Budget Responsibility says will affect consumption and investment in the UK.

She added that continued pressure on real income and higher interest rates will also contribute to pushing the economy into a recession that will last just over a year from the third quarter of 2022.

In his fall statement, Hunt said his fiscal plan will mean the recession will be “shallower and shorter” than previously expected.

In a surprise move, Hunt announced that the stamp duty cut that former chancellor Kwasi Quarting introduced into his ill-fated mini-budget in September is only temporary and will expire on March 31, 2025.

Kwarteng raised the house price threshold under which buyers do not have to pay land tax from £125,000 to £250,000.

This means home movers will save up to £2,500, and 200,000 homebuyers each year will pay no stamp duty at all.

But today, it was announced that the increased tax credit will be phased out next spring.

Find out how much stamp duty you’ll pay under the current system below.

Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.