House prices are set to fall 10 per cent from their most recent high before picking up again in 2026, according to the Office for Budget Responsibility (OBR).
The forecast in the public body’s latest report, released alongside today’s Spring Budget represents a further 1 per cent drop compared to its last prediction in November.
Property transactions are also set to fall, dropping 20 per cent from compared to the final quarter of 2022.
In its report the OBR put these falls down to ‘low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises’.
Previous figures from Halifax and Nationwide have suggested that house prices have already fallen by 3 to 6 per cent between their peak in the middle of 2022 and February 2023.
However, the report contains some good news for homeowners anxious about interest rates, as it says the average rate on outstanding mortgages is expected to peak at 4.2 per cent in 2027.
This is 0.8 percentage points lower than forecast in November, suggesting that rates might not rise as much as previously predicted. Nevertheless, the rate is still twice as high as it was at the end of 2021.
With more than 80 per cent of mortgages on fixed-term contracts, the increase in rates on new mortgages in recent months will take several years to feed through, the report explains.