House prices are expected to fall by nearly 10 percent over the next two years, according to the Office for Budget Responsibility (OBR). The decrease is largely driven by higher mortgage rates and the wider economic downturn.
The OBR said house prices are forecast to drop by 9 percent between the fourth quarter of 2022 and the third quarter of 2024. Average interest rates on the stock of outstanding mortgages are expected to peak at 5 percent in the second half of 2024, the highest level since 2008, the OBR added.
Due to large numbers of home owners sitting on fixed-rate mortgages, higher interest rates on new deals take a while to feed through to the stock of existing home loans. As the economy recovers, house prices are expected to be around seven times earnings, although the OBR said there is significant uncertainty over its forecast “given the sensitivity of house prices to mortgage rates and the recent volatility in the bond yields that drive pricing in the mortgage market”.
