House Prices to Slump by 9% in Two Years

Economists reckon house prices will drop nine per cent in the next two years.

The latest report from the Office of Budget Responsibility (OBR) echoes other analysts who have forecast a housing market slowdown driven by rising mortgage interest and uncertainty over the economy.

The study suggests household mortgage rates will not rise higher than five per cent by the end of 2024 before dropping to 4.6 per cent  - the highest level since the financial crisis of 2008.

However, the OBR says the impact of changing mortgage rates will take time to filter through.

“As the economy recovers, house prices rise slightly faster than nominal incomes from 2025 (at around 2.6% a year), and the house-price-to-earnings ratio settles at around 7.0, somewhat lower than the ratio of 7.3 in our March forecast,” OBR said.

Kwarteng's mini-Budget mania

“There is significant uncertainty over this forecast given the sensitivity of house prices to mortgage rates and the recent volatility in the bond yields that drive pricing in the mortgage market.”

The latest house price figures still lag former Prime Minister Liz Truss' time in office and her chancellor Kwasi Kwarteng's madcap Budget.

The government's official house price index from the Office for National Statistics (ONS) was released on November 16 2022, based on data gathered in September 2022.

The figures reported a sharp fall in the rate of house prices increasing - down from 13.1 per cent in August 2022 to 9.5 per cent. The ONS explained the fall was due to house prices rising sharply in September 2021, thanks to a stamp duty holiday.

The ONS also set the price of an average home at £295,000 - an increase of £26,000 in a year.

How house prices have changed since 2006

ONS house price changes September 2022

Source: ONS

The latest ONS report shows house prices have risen the fastest in the past year in South-West England (11.9 per cent), followed by the East Midlands (11.3 per cent). Prices have moved the slowest in the North East (5.8 per cent) and London (6.9 per cent).

House prices around the country

ONS house prices September 2022

Source: ONS

Significant shock

The house price data from the Halifax shows a fall of 0.4 per cent in October.

Price growth fell from 9.8 per cent to 8.3 per cent, slowing down in every region except the North East.

The pace of yearly price increases also slowed in London. House prices rose 6.8 per cent over the past 12 months.

Kim Kinnaird, Director of Halifax Mortgages, said: "Average house prices fell in October, the third such decrease in the past four months. The drop of 0.4% is the sharpest we have seen since February 2021.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini-budget, which saw a sudden acceleration in mortgage rate increases. While it is likely that those rates have peaked, for now, it appears that recent events have encouraged those with mortgages to look at their options and some would-be homebuyers to take a pause. Understandably we have also seen consumer caution grow.”

Interest rate turmoil

Britain's other big mortgage lender, Nationwide, also reported a house price slowdown in October.

The building society says prices fell 0.9 per cent in a month, with yearly growth slowing from 9.5 per cent to 7.2 per cent.

Robert Gardner, Nationwide's chief economist, said: "The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates. Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation."

House price history for your neighbourhood

Use this interactive map to assess how your property investments have performed. Input the town name, and the map does the rest.

Source: ONS and Land Registry

House price digest FAQ

The figures for average house prices and movements in property values can be confusing if you don't know how to read the data.

Here are some of the most asked questions about house price indices.

Why are the average property prices different in each report?

The reports use different data to draw conclusions and take the data from different periods.

Nationwide and Halifax base their indices on customer data, which are much smaller samples than the national data analysed by the ONS.

Acadata's methodology includes analysis that no other index uses.

Each organisation collects data over different periods, making a direct comparison difficult.

What is the average house price?

There's no such thing as an average home. The figure is calculated from the total value of all transactions in the sample divided by the number of homes changing hands.

What are the asking and sale prices?

The asking price is the amount an owner would like to achieve from a house sale, while the sale price is the negotiated amount paid by the buyer.

Which house price index is the best?

All have flaws because of the restricted data, but the one with the broadest sample comes from the ONS. Unfortunately, the ONS data is usually the last to market and out of date by two to three months on publication.

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