House prices will fall 2% this year – OBR

The Office of Budget Responsibility (OBR) has released its Spring Budget forecast, predicting a 2% drop in house prices this year.

And the OBR admits in its briefing papers that the cut in Capital Gains Tax IS aimed at reducing the number of landlords and second homeowners (see below).

Its house price forecast for 2024 is less severe than the 5% decline projected in the OBR’s November report.

The organisation points to the easing of mortgage rates for helping its optimistic outlook.

Mortgage rates have been gradually falling since the end of 2023, but there’s been an uptick since as swap rates rise.

Also, economists are concerned about when the Bank of England will next reduce base rates – which might not happen until August.

‘House prices to fall around 2% in 2024’

In its report, the OBR states: “In our central forecast, we expect house prices to fall around 2% in 2024, slightly under half of the 5% we expected in November.

“This is mainly due to our lower mortgage rate forecast.

“The average house price in the UK is forecast to fall to slightly under £275,000 in the final quarter of 2024.

“Supported by falling new mortgage rates, we then expect house prices to grow around 2% in 2026, and around 3½ per cent in 2027 and 2028.

“That would see nominal house prices surpass their historical peak in the first quarter of 2027.”

UK economy faced a technical recession

The UK economy faced a technical recession last month, with gross domestic product contracting by 0.3% between October and December.

That follows a 0.1% decline from July to September.

The average two-year fixed residential mortgage rate has risen by two basis points to 5.78%, according to Moneyfacts.

It also says that the average five-year fixed rate remains steady at 5.34%.

The OBR also predicts that inflation will dip below the Bank of England’s 2% target in the second half of this year.

That fall will be down to falling global energy prices and a cooling domestic labour market.

And when it comes to economic growth, the OBR offers a more optimistic outlook than the Bank of England.

It anticipates a 0.8% expansion in the UK economy this year and a robust 1.9% growth in 2025.

In contrast, the BoE offers a conservative estimate of 0.2% in 2024 and 0.6% next year.

CGT cut aimed at reducing landlord numbers

Meanwhile, landlords may not be surprised to learn that the cut in Capital Gains Tax is aimed at reducing landlord numbers.

The reduction from 28% to 24% when selling a property will still see main homes remaining exempt.

However, the cut will only benefit those who own more than one property – such as private landlords and second homeowners.

And the move will only affect those who are in the higher rate of tax band – that’s just over £50,000.

The admission is in the Budget Red Book that the CGT cut will persuade landlords to sell up.

The briefing explains the move will “Encourage landlords and second homeowners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time, while also raising revenue over the forecast period.”

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