The Office for Budget Responsibility (OBR) has provided a more optimistic forecast for UK mortgage rates. For those worried about rising mortgage rates, the OBR has some good news. The peak mortgage interest rate is now forecasted to hit 4.2% in 2027, a decrease from the previously predicted peak. Even more encouraging is that mortgage rates are expected to stay under 4% until 2026, offering a period of relative stability for homeowners and buyers alike.
The Path to Recovery
The journey of the housing market towards recovery is already mapped out in the OBR’s forecast. After a temporary decline, house prices are set to resume growth in 2026, with a 2% increase expected. This growth is anticipated to accelerate in the following years, with a 3.5% rise in both 2027 and 2028. By 2029, the average house price is expected to surpass £300,000, finally exceeding the previous peak of £285,000 seen in early 2027.
Government’s Role in Housing
In response to these forecasts, Chancellor Jeremy Hunt has shelved the idea of a 99% mortgage scheme, wary of the inflationary pressure it could place on house prices. Instead, he’s turning his focus towards increasing housing availability and support for first-time buyers. A significant £188 million investment is earmarked for housing projects in Sheffield, Blackpool, and Liverpool, promising a boost to the housing supply in these areas.
The Future of Mortgage Rates and Housing Market
The OBR’s revised mortgage rate forecast stems from lower-than-expected market predictions for the Bank of England’s base rate, currently at 5.25%. However, the OBR cautions that these mortgage rate forecasts come with their own set of risks, especially given the volatility in bank rate expectations since November. Despite these uncertainties, the OBR remains optimistic that the demand for housing will increase, fueled by the prospect of lower mortgage rates.
Impact on Housing Transactions
The housing market experienced a significant slowdown last year, with transactions plummeting by more than 40% in the third quarter, compared to the post-pandemic peak. This downturn was largely due to rising Bank rates. However, the OBR now forecasts a stable year ahead for housing transactions, a welcome change from the previously anticipated 7% decline.
Zoopla’s house price index aligns with this positive outlook, projecting 1.1 million home sales in 2024, up from 1 million last year. This increase is supported by a 21% rise in the number of homes on the market, driven by growing demand. Zoopla also reports an 11% increase in buyer demand compared to last year, signaling a rejuvenating market.
What This Means for You
For current homeowners, the OBR’s forecast offers reassurance that the value of their investment might not erode as sharply as feared. Potential buyers, on the other hand, can take comfort in the stabilising mortgage rates and gradually recovering market conditions. The government’s commitment to housing projects and support for first-time buyers further sweetens the pot, potentially making the dream of homeownership more attainable for many.