Mortgage rates to remain high and house prices set to drop over

Mortgage rates to remain high and house prices set to drop over next two years

Recent reports have suggested that mortgage interest rates will remain high for the next two years, leaving many homeowners and potential buyers in a difficult position. However, it has also been forecast that house prices will fall over the same period, which could ease some of the pressure for first-time buyers, many of whom consider themselves now priced out of the market altogether.

While lower house prices could mean a better chance of saving a deposit and being able to get a mortgage based on income, many first-time buyers will still be bitten by the high rate of interest. The Bank of England’s base rate now stands at 3%, and rates on fixed-rate deals could hover around the 6% mark for the next couple of years.

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House prices will rise again

Predictions relating to house prices have been made by the Office for Budget Responsibility (OBR). However, officials have said that although prices will likely drop in 2023 and 2024, they could start rising again from 2025.

Despite the recent slowdown in the property market, OBR predictions suggest that prices will continue to increase this year by 10.7%. However, next year, property prices are expected to drop by 1.2%, and the year after, there will be a fall of around 5.7%, according to the forecasts.

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In 2025, 2026, and 2027, house prices are expected to increase by 1.2%, 3%, and 3.5%, respectively. However, officials have said that the data is very uncertain due to the impact of mortgage rates and borrowing costs on house prices.

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First-timers still expected to seek help

Officials have said that most first-time buyers now believe they will struggle to save a deposit due to soaring living costs. In addition, nearly 50% of them think they have no hope of becoming homeowners. Many are expected to turn to the ‘Bank of Mum and Dad’ for help even if house prices fall as predicted.

Richard Fearon, chief executive of Leeds Building Society, said: “Our research shows that 81% of aspiring first-time buyers say that the cost-of-living crisis has made it harder for them to save for a deposit and almost half of them now doubt they will ever get onto the housing ladder.”

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Those who can save toward a deposit will find some relief in the expected house price falls. However, getting an affordable mortgage due to higher interest rates could still pose a problem for some, as it could make repayments unaffordable, particularly with essential costs such as energy and food remaining high. There are also hopes that as inflation softens, the Bank of England might reduce interest rates to reduce the risk of a deeper recession.