The Office for Budget Responsibility (OBR) has stated that house prices are poised to rebound at a faster pace than previously anticipated. This is attributed to mortgage interest rates declining more rapidly than initially projected. The OBR's latest forecast suggests a mere 2 per cent decrease in prices for this year, significantly less than the 5 per cent decline predicted in November. Consequently, it is anticipated that the average UK property price will approach just under £275,000 by the final quarter.
It predicted that prices would then grow higher and faster than previously forecast, with an increase of 2 per cent in 2026 and 3.5 per cent in 2027 and 2028. At this rate of increase, house prices would break records in the first quarter of 2027, the OBR said.
The prediction coincided with a significant drop in mortgage rates, which had surged in the months following the Liz Truss-Kwasi Kwarteng minibudget of September 2022. However, these rates are now declining at a pace faster than initially anticipated.
According to the watchdog, average mortgage rates are expected to reach their highest point at 4.2 per cent in 2027. This projection is 0.8 percentage points lower than the forecast made in November.
However, it said: “There are significant risks to our mortgage-rate forecast, demonstrated by the large movements in bank expectations since November. This also poses a risk to household incomes, residential housing transactions and house prices.”