In the wake of the recent Budget, the Office for Budget Responsibility (OBR) projects a stable increase in house prices along with elevated mortgage and interest rates.
- House prices are expected to grow by 15% from 2024 to 2030, despite a slight dip in growth rates initially.
- CPI inflation is set to fluctuate, reaching 2.6% in 2025 before settling back to 2%.
- The Bank Rate is anticipated to decrease from 5% to 3.5% by 2030, with variations around initial expectations.
- Mortgage rates are projected to peak at 4.5% in 2027, influenced by fixed-rate mortgages repricing.
The OBR’s recent projections indicate a 15% increase in house prices over the period from 2024 to 2030. Initially, the growth rate is expected to slip from 1.7% in 2024 to 1.1% in 2025, influenced by rising average mortgage rates. Thereafter, growth is predicted to stabilize, averaging around 2.5% annually from 2026, supported by nominal earnings growth. Despite growth fluctuations, the average UK house price is projected to reach £310,000 by 2028, exceeding previous forecasts by approximately 2.5%.
Following a dip to the 2% CPI inflation target by mid-2024, inflation is forecasted to rise to 2.6% in 2025. This increase is partially attributable to the direct and indirect effects of recent Budget measures. Subsequently, inflation should gradually align with the 2% target set for 2029, with interim figures showing 2.5% for this year and 2.6% for next year. Over the following years, projections show a slow descent to 2.1% in 2027 and 2028.
The current Bank Rate of 5% is forecast to fall to 3.5% by the end of the projection period. This anticipated decrease remains approximately half a percent higher than earlier estimates due to market adjustments. Notably, the recent Budget’s fiscal easing was not entirely anticipated, prompting the OBR to adjust Bank Rate and gilt yield forecasts upward by a quarter percentage point. Interest rate predictions for 2025 range between 3.6% and 4.7%, highlighting ongoing uncertainty.
For mortgage rates, the OBR expects an average rise from 3.7% in 2024 to a peak of 4.5% by 2027, remaining at that level through the forecast horizon. The prevalence of fixed-rate mortgages, accounting for about 85% of the market, acts to cushion immediate impacts from Bank Rate changes. Bank of England analysis reveals that approximately two-thirds of fixed-rate mortgages have been adjusted since the beginning of the current rate hike cycle, with the remaining portion expected to follow suit by 2026.
The OBR’s forecasts suggest a resilient housing market amidst fluctuating economic indicators, advocating a cautious yet steady outlook for future growth.
