House prices will fall less than previously forecast in 2024 and mortgage rates are also predicted to rise less steeply, data shows.
The average house price is forecast to fall by 2 per cent this year, according to the central forecast from the Office for Budget Responsibility.
This compares with a previously expected decline of 5 per cent that the OBR predicted just four months ago in the Autumn Statement.
Lighter falls: The OBR says the average house price will rise beyond £300k by 2029
It said the average house price is now forecast to fall to just below £275,000 in the final quarter of the year, with the lower fall due to lower mortgage rate expectations.
House prices will continue their dip into 2025, before returning to growth in 2026, increasing by 2 per cent over the course of the year, before rising by 3.5 per cent in 2027 and 2028 as a result of lower mortgage rates.
By 2029, the OBR predicts that the average house price will have risen to more than £300,000, having passed the previous peak of £285,000 in the first quarter of 2027.
Following his Spring Budget, the Chancellor abandoned reported plans for a 99 per cent mortgage scheme, due to fears that it could cause property prices to rise.
Jeremy Hunt also promised to build more homes and provide more support to first-time buyers, including by pledging £188million to housing projects in Sheffield, Blackpool and Liverpool.
Meanwhile, mortgage woes could be somewhat reduced in the coming years, as OBR figures indicate that average mortgage interest rates will hit a peak of 4.2 per cent in 2027, 0.8 percentage points lower than the OBR forecast made in November.
While rates are expected to continue to rise, they will do so more slowly, remaining below 4 per cent until 2026, where the previous forecast had anticipated rates hitting this point in 2024.
This is an average rate taken from all housing stock.
More stable: House prices are forecast to fall less than expected
Less painful: Mortgage interest rates are expected to hit a peak of 4.2 per cent in 2027
The OBR said the lower mortgage rates are a result of a decline in market expectations for the Bank of England’s base rate, which currently sits at 5.25 per cent.
‘However, there are significant risks to our mortgage rate forecast, demonstrated by the large movements in bank rate expectations since November.
‘This also poses a risk to household incomes, residential housing transactions and house prices,’ it said.
Ahead of anticipated cuts to base rate, the OBR said rates on new mortgages will continue to fall, with housing demand set to increase on the back of these lower mortgages.
Housing transactions declined by more than 40 per cent to 265,000 in the third quarter of last year, compared with the post-pandemic peak, as the Bank rate increased.
The OBR said it now expects housing transactions to remain roughly flat this year, having previously forecast a decline of 7 per cent.
According to Zoopla’s house price index, 1.1 million homes sales are expected in 2024, compared with 1million last year, with 21 per cent more homes on the market this year due to increasing demand.
Buyer demand has risen 11 per cent compared with a year ago, Zoopla said.
