The Office for Budget Responsibility (OBR) predicts UK house prices are set to slump this year.
House prices have been under pressure for the past six months, and now the OBR believes prices could fall as much as 10% by 2024, that’s from their fourth quarter 2022 high.
The agency was projecting a 9% decline last year, but it has upped its projection as “low consumer confidence, the squeeze on real incomes and the expectation of mortgage rate rises” weigh on the property market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The watchdog estimates the average property price will fall to £262,700 next year, down from an all-time high of £291,700 in the final quarter of 2022.
The OBR also expects property transactions to drop by 20% compared to their peak in the fourth quarter of 2022.
Property prices have begun to fall
Data from other house price indexes support the OBR’s projections that house prices are coming under pressure.
The latest report from the Royal Institute of Chartered Surveyors (RICS) showed that while new buyer enquiries rebounded in February from multi-year lows, they remain depressed.
Meanwhile, Nationwide reported house prices saw their biggest dip since 2012 in February.
Where next for mortgage rates?
High financing costs are one of the reasons why the property market is cooling.
As the Bank of England has hiked interest rates to try and control inflation, mortgage rates have climbed to their highest levels in recent memory.
Mortgage rates hit a peak of 6.65% in September. The average two- and five-year fixed rates are currently around 5%.
And it’s not just new buyers that are suffering. Homeowners with outstanding mortgages are also expected to see much higher borrowing costs in the near future.
The OBR now estimates rates for outstanding mortgages will reach 3.8% in 2024 before climbing back up to 4.2% in early 2027 – two times higher than what they were at the end of 2021.
While these projections are brighter forecast than the forecast the OBR published in November, when it expected rates to peak at 5% in 2024, they still imply the cost of borrowing is going to rise substantially over the coming years. This will almost certainly have an impact on UK house prices.
-
Stop inheritance tax perk on pensions, says IFSThe government could raise billions of pounds in revenue by closing inheritance tax loopholes, such as on pensions and AIM shares. Is your pension at risk?
-
Revealed: Best buy-to-let property hotspots in the UKLooking for the best buy-to-let property locations in the UK? We reveal the top 10 postcodes with the strongest rental returns
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsWe round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
