House prices expected to fall by 9% over the next two years, says OBR
House prices are expected to fall by nearly 10 per cent over the next couple of years, largely driven by higher mortgage rates and the wider economic downturn.
The Office for Budget Responsibility (OBR) said house prices are forecast to drop by 9 per cent 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 per cent in the second half of 2024, the highest level since 2008, it 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".
To support mortgage borrowers with rising interest rates during periods of low income, from spring 2023 the government also said it will allow those on universal credit to apply for a loan to help with interest repayments after three months instead of nine.
Lucian Cook, head of Savills residential research, said: "Over the past week or two we've seen lenders begin to lower their fixed rates."
Iain Mckenzie, CEO of the Guild of Property Professionals, said: "There may be some realignment in pricing to adjust for the rising cost of living but the market will recover."