January 31, 2023

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According to the Office of Budget Responsibility (OBR), home prices will fall by about 9% between the end of this year and September 2024.

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

The OBR Economic and Fiscal Outlook report, released alongside the chancellor’s autumn statement, says average interest rates on outstanding mortgages will peak at 5% in the second half of 2024.

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This is the highest average since 2008 and 1.8 percentage points above the peak predicted by the OBR in its March forecast. The average rate will then drop slightly to 4.6% by 2028 when the forecast ends.

Ups and downs: The OBR said house prices will fall 9% next year before rising again in 2026 and beyond.

However, the outlook notes that due to the relatively large share of fixed-rate mortgages (about 83% in the second quarter of 2022 compared to 51% in 2007), higher rates on new mortgages take time to reach population. medium.

OBR says that as the economy recovers, home prices will rise slightly faster than incomes from 2025 (about 2.6% per annum), with a home price-to-earnings ratio set at around 7.

Forecasts are based on peak-to-trough quarterly measurements that predict the highest and lowest house price increases in each three-month period.

This is slightly more optimistic than the forecast by real estate agency Savills, which predicts that home prices will fall by 10% next year and then rise by 1% in 2024.

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Back in May, a real estate agent was predicting a fall of just 1% in 2023, but a sharp rise in mortgage rates has led to a bleaker outlook.

Rates are on the rise: Mortgage rates rose rapidly in the second half of the year, but are expected to ease in the coming years, according to OBR.

Rates are on the rise: Mortgage rates rose rapidly in the second half of the year, but are expected to ease in the coming years, according to OBR.

However, the OBR added a caveat to its forecast, adding that “there is significant uncertainty around this forecast given the sensitivity of home prices to mortgage rates and the recent volatility in bond yields that affects mortgage market pricing.”

In its fiscal year data, the OBR projects that home prices will fall 4.2% in 2023-2024 and 4.0% in 2024-2025 before rebounding to a 2.1% increase in 2025-2026 .

According to the latest ONS data, house price growth fell to 9.5% in September from 13.1% in August.

Where are mortgage rates heading?

After the September mini-budget, yields on securities jumped, raising the cost of borrowing for banks.

Lenders responded by raising their own mortgage rates, ensuring they weren’t caught off guard by a sharp increase in the cost of credit by passing it on to their customers.

Prior to the mini-budget on Friday, Sept. 23, the average two-year flat rate across all categories of loan-to-value was 4.74%, and the five-year flat rate was 4.75%, according to Moneyfacts.

Today it is 6.23% and 6.04% respectively. However, both the 2-year and 5-year fixed rates declined from last month’s peaks of 6.65% and 6.51% for the 2- and 5-year average fixed rates.

And rates keep falling. The Skipton Building Society entered into a three-year fixed-rate deal at 60% loan-to-value at a rate of 5.03%.

The Co-operative Bank has a two-year mortgage with a fixed rate of 80 percent LTV at 5.89 percent.

Higher mortgage rates and falling home prices are two trends that the OBR believes will weigh on consumption and investment in the UK.

The continued contraction in real incomes and rising interest rates will also contribute to a recession in the economy, lasting just over a year starting in the third quarter of 2022, he said.

In his fall statement, Hunt said his financial plan would mean the recession would be “smaller and shorter” than previously forecast.

Unexpectedly, Hunt announced that the stamp duty reduction introduced by former chancellor Kwasi Kwarteng in his ill-fated September mini-budget was temporary and would end on March 31, 2025.

Quarteng lowered the house price threshold, below which buyers must not pay stamp duty on land, from £125,000 to £250,000.

This meant that movers would save up to £2,500 and another 200,000 homebuyers each year would pay no stamp duty at all.

But today an increase in tax breaks has been announced, which will be phased out in the spring of next year.

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