The Office for Budget Responsibility has raised its forecasts for both house prices and future mortgage rates compared to its March forecast.
In its latest Economic and Fiscal Outlook released today, the independent agency predicts that average interest rates on mortgage balances will rise from around 3.7% in 2024 to a peak of 4.5% in 2027, and then remain around that level until the end. He said he expected it. of the forecast. 
“Compared to our March forecast, mortgage rates are on average around 0.3 percentage points above forecast, due to higher bank rate forecasts.”
Bank of England benchmark interest rate forecast
“Bank interest rates are expected to fall from their current level of 5% to 3.5% in the final year of the forecast (2030).
“From 2025 to 2026, this will be about 0.5 percentage point higher than the level of the bank rate forecast in March.”
The OBR went on to say that this difference is partly a result of changing circumstances since March and a change in market consensus.
However, this suggests that the Prime Minister has gone further than the market expected on some measures.
“However, at this point in time, it is likely that market participants were not expecting the full implementation of discretionary fiscal easing in this budget, so we have raised bank interest rates and government bond yields by a quarter of a percentage point overall.” There is.
housing market
OBR states: “Our central forecast is that house price growth will moderate slightly from 1.7% in 2024 to 1.1% in 2025 as average effective mortgage rates continue to rise.
“House price growth will average around 2.5% from 2026 to the end of the forecast (2030), supported by growth in nominal revenues.
“House prices have risen by about 3% in the first half of this year, and average house prices are about 3% higher than our March forecast for mid-2024.”
“Average house prices have outperformed our March forecasts throughout, driven by recent resilience and our expectations for nominal income growth.
“This will leave average UK house prices at £310,000 in 2028, around 2.5% higher than our March forecast.”
The OBR predicts that property transactions will increase from around 275,000 per quarter in 2024 to around 350,000 over the five-year forecast period.
“The number of housing starts, a leading indicator of net increase in housing stock, is expected to gradually recover from a 10-year low of about 100,000 units in 2024 and reach about 160,000 units in 2029. ”.
“The cumulative total exceeded expectations, with a net increase of approximately 1.3 million people.''
However, the OBR also said the government is proposing “significant changes” to the National Planning Policy Framework as part of wider reforms to the planning system, which could increase these figures if the measures are successful. Pointed out.
