Homeowners have been left in the dark as house prices are expected to drop by £26,550 by the summer of 2024, according to the latest forecasts from the Office for Budget Responsibility (OBR).
It says property values will fall 9 percent by the third quarter of 2024, largely due to “significantly higher mortgage rates and the broader economic downturn.”
That would put the average house price at around £268,450, negating the price increases of the past 12 months.
Permanent stamp duty cuts announced in the September “mini” budget will only last until March 2025.
First buyer and restaurant manager Iryna Charis, 40, decided to stay in her two-bedroom flat in South London.
First buyer and restaurant manager Iryna Charis (pictured), 40, decided to stay in her two-bedroom flat in south London because property prices could fall by 9 per cent by 2024
The OBR has said house prices will fall 9 percent next year and rise again in 2026 and beyond
Ms Charis, who is originally from Ukraine and earns £50,000 a year, bought the property last year for £610,000 as part of a shared ownership.
She owns 25 per cent of the flat and pays rent on top of a £480 mortgage set at 1.9 per cent.
She said: ‘I have to re-mortgage my property soon and that is quite a big difference.
“I’m on a flat rate for two years and it ends in May… I’m worried, but I hope things have stabilized by May.”
Chancellor Jeremy Hunt said: ‘The OBR expects housing activity to slow for the next two years, so the stamp duty cuts announced in the mini-budget will remain in place, but only until 31 March 2025.
“After that, I will stop the measure, creating an incentive to support the housing market and all jobs associated with it by stimulating transactions during the period when the economy needs it most.”
On 23 September 2022, the government raised the threshold from which stamp duty was paid from £125,000 to £250,000 for all properties purchased in England and Northern Ireland.
According to the latest forecasts from the Office for Budget Responsibility, house prices are expected to drop by the summer of 2024 by £26,550. (stock image)
For starters, the threshold was raised from £300,000 to £425,000.
Those who bought their first home could also claim tax relief on property worth up to £625,000, previously £500,000. All these changes will be reverted.
Paul Johnson, director of the Institute of Fiscal Studies, said: “The stamp duty cuts announced in the mini-budget will be scrapped … about the only good policy in that case.”
The OBR also predicted that mortgage rates homeowners typically pay will rise from 3 percent today to 5 percent by the end of 2024, the highest level since 2008.
That is 1.8 percentage points above the March forecast.
More than four in five mortgage deals are currently firm. The Bank of England says two million mortgage holders will come to the end of their fixed rate contract by 2023.
Home loan interest rates are still expected to reach 4.6 percent in 2028, suggesting that the era of historic bottom deals is over.
That comes despite some rate cuts from major lenders in recent days.
The OBR also predicted that mortgage rates homeowners typically pay will rise from 3 percent today to 5 percent by the end of 2024, the highest level since 2008
London and Country estate agent David Hollingsworth said: ‘A lot has happened since March.
“Base interest rate expectations are falling after the peak in the mini budget and we are starting to see that reflected in mortgage rates.
“Some five-year yields have fallen below 5 percent again and we may see more momentum there.”
The average property is now worth £295,000, according to data from the Office for National Statistics released earlier this week.
The ONS says house prices are up £26,000 in the year to September, meaning the predicted drop in OBR would wipe out all growth.
Andrew Montlake, managing director at broker Coreco, said: ‘After real estate prices boiled over, we are now seeing the pandemic froth erupting.
During the last stamp duty reduction, low supply and high demand led to rising house prices. That will all decrease again.’