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  • Writer's pictureZiggurat Realestatecorp

UK Mortgage rate rises ‘to push house prices down 8%’

House prices will fall by 4.5 per cent next year because of higher mortgage rates, the Office for Budget Responsiblity said yesterday. It believes that by the end of next year they will have  fallen by 7.6 per cent from their peak, in the fourth quarter of last year.

It will take the price of an average UK home to a low of £266,000. “We then expect house prices to recover slowly, reaching their late 2022 peak levels in the second half of 2027 and rising to 6.4 per cent above this level by the end of the forecast [2029],” it said.

“The outlook for house prices is particularly sensitive to changes in interest rates and household income growth.” The forecast is an improvement on the OBR’s predictions in March by 2.4 percentage points. Broken down by year, the watchdog said that prices would do better than expected this year, with a rise of 0.9 per cent, but then dip again by 4.7 per cent in 2024. Rocketing mortgage rates after the September 2022 mini-budget had led to transactions falling to their lowest levels since the middle of the pandemic in the second quarter of this year.

The Royal Institution of Chartered Surveyors reported that new buyer inquiries were at their lowest level outside of the pandemic period since 2008. The OBR said transactions would fall by 6.9 per cent in 2024, a 1.9 percentage point steeper decline than its March forecast, as mortgage rates remained stubbornly high and deterred buyers.

Average mortgage rates are predicted to rise from 2 per cent in 2021 to peak at 5 per cent in 2027. That is 0.8 percentage points higher than the forecast in March and 2.2 percentage points above the average for the last decade.

The OBR’s figures predict the average rate that will be being paid by all borrowers with mortgages in 2027. It does not indicated the average fixedrate deal that banks will be offering for new borrowers in 2027: this will be far lower than 5 per cent, because banks offer deals based on what they think rates might be in the future.

In its report the OBR said that, because nearly nine in ten borrowers are on fixed-rate deals, it takes longer than it used to for higher interest rates to filter through to everyone’s mortgages, which means that over half of the impact from two years of interest rate rises has yet to be felt.

Aneisha Beveridge, the head of research at Hamptons, said the news was not as bleak as feared because new deals offered by banks, particularly five-year offers looking ahead as far as 2029, were now starting to fall. She said: “It looks increasingly likely that mortgage rates peaked in July and, should rate falls accelerate, there may be a time where some households will find it beneficial to pay an early repayment charge on their existing deal and move on to a lower rate.” Lucian Cook, director of residential research at Savills, said: “Even for those homeowners who have faced a sharp rise in mortgage costs, the impact has, in the main, been uncomfortable as opposed to wholly unmanageable.”

While rates advertised by lenders have come down over the last few months, the cheapest deals offered by banks still only start from 4.5 per cent. Jeremy Hunt said that the government’s mortgage guarantee scheme, which supports lenders providing 95 per cent loan-to-value mortgages, would continue to June 2025. It had been due to close at the end of this year. 

Source: The Times

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