Average house prices will return to their Q3 2022 peak in Q2 2025 and be 15% higher than at present by the end of 2027, according to the latest projections from Pantheon Macroeconomics.
The economic research consultancy confirmed earlier this month that it is expecting an 8% peak to trough decline in house prices over the next year.
It also said that it thinks Office for Budget Responsibility’s (OBR’s) forecast for the effective mortgage rate looks implausibly high.
But while it said the “glacial decline in mortgage rates since October” shows that a rebound is not likely soon there is the potential for a relatively rapid bounce back.
A report from the firm read: “Our view that the MPC will not need to keep Bank Rate indefinitely as high as 4%—the peak rate we anticipate early next year—implies that house prices have potential to bounce back in the mid-2020s.
“We assume the MPC will reduce Bank Rate by 0.50% in 2024, then by 1% in 2025 and a further 0.50% in 2026, so that it reaches the 2% level which we consider to be the neutral rate.
“Our low neutral rate forecast is based on our assessment that Britain’s trend growth rate is just 11/4%, reflecting continued weakness in productivity growth and slower growth in the workforce than in the 2010s, due to the U.K.’s demographic structure.
“While this assumption also points to sluggish growth in households’ nominal incomes—we have pencilled-in year-over-year growth of 3.5% for the medium term—it points to a spurt of house price growth as the fall in mortgage rates gathers pace.”
Later this morning the Bank of England will be releasing the latest mortgage data for October. Pantheon said it expects that house purchase mortgage approvals to have dropped to about 60,000, from 68,800 in September.
But it warned “a much lower figure is entirely possible”.
