An impending decline in the housing market has dissuaded homeowners from jumping the property ladder in light of the Chancellor’s fall budget.
According to the Office for Budget Responsibility’s most recent forecasts, house prices are predicted to fall by £26,550 by summer 2024. (OBR).
According to the report, house values will decline by 9 percent by the third quarter of 2024, primarily due to “much higher mortgage rates and the broader economic downturn.”
This would bring the average home price to approximately £268,450, erasing price rises over the past year.
Permanent stamp duty cuts announced in the “mini” Budget of September will only be in effect until March 2025.
Iryna Charis, a 40-year-old restaurant manager and first-time buyer, elected to remain in her south London two-bedroom apartment.
Last year, Miss Charis, who is from Ukraine and earns £50,000 annually, purchased the property for £610,000 as part of a joint ownership.
She owns 25% of the apartment and pays rent in addition to a £480 fixed-rate mortgage.
She stated, “I need to refinance my home soon, and the difference is rather substantial.
I have a two-year fixed rate that expires in May. I am concerned, but I am hopeful that by May, things will have stabilized.
The OBR anticipates a slowdown in home activity over the next two years, thus the stamp duty reductions announced in the mini-budget will continue in effect until March 31, 2025.
After that, I will repeal the policy, so creating an incentive to support the housing market and all the jobs linked with it by boosting transactions during the most crucial moment for the economy.
On September 23, 2022, the government raised the stamp duty threshold for all residential property purchases in England and Northern Ireland from £125,000 to £250,000.
The barrier for first-time buyers was raised from £300,000 to £425,000.
Previously, first-time homebuyers could claim tax relief on properties up to £500,000; now, they can claim tax relief on properties up to £625,000. All of these modifications will be undone.
Paul Johnson, the head of the Institute for Fiscal Studies, stated, “The stamp duty cuts proposed in the mini-budget will be repealed… the only good policy in that case.”
The OBR also anticipated that by the end of 2024, the average mortgage rate paid by homeowners will reach 5%, the highest level since 2008.
This is 1.8 percentage points more than its March projection.
Currently, more than four out of five mortgage transactions are fixed. According to the Bank of England, two million mortgage holders will lose their fixed-rate arrangement in 2023.
By 2028, mortgage rates are projected to remain around 4.6%, indicating that the period of historically low rates has ended.
This is despite recent rate reductions from major lenders.
David Hollingsworth, a broker with London and Country, stated, “Since March, much has transpired.”
‘Base rate expectations are declining following the mini-budget increase, and mortgage rates are beginning to reflect this.
Some five-year interest rates have returned to below 5%, and we may see further momentum there.
According to figures issued by the Office for National Statistics earlier in the week, the average property now costs £295,000.
According to the ONS, house prices increased by £26,000 in the year leading up to September, thus the OBR’s predicted decline would wipe out any growth.
Andrew Montlake, managing director of Coreco, stated, “After home prices exploded, we are now witnessing the epidemic froth evaporating.”
‘During the last stamp duty drop, little supply and great demand caused house prices to rise. All of it will gradually diminish.’