UK house prices are expected to fall by 10% from their previous peak in the fourth quarter of 2022, according to the Office of Budgetary Responsibility (OBR) forecast published on Wednesday as chancellor Jeremy Hunt unveiled his budget. The fall in house prices is predicted to be a result of low consumer confidence, interest rate rises and the cost of living squeeze.
The OBR's document on the UK's fiscal and economic outlook for March stated: "Our central forecast is that house prices fall by 10% from their high in the fourth quarter of 2022, a 1% point larger fall than in our November forecast. Property transactions are expected to drop by 20%."
"Low consumer confidence, the squeeze on real incomes, and the expectation of mortgage rate rises to come are expected to contribute to continued falls in house prices and a reduction in housing market activity."
Chancellor Jeremy Hunt gave his Spring budget statement to the House of Commons this Wednesday, announcing that the UK would not enter a "technical recession", but economic activity would still shrink by 0.2% in 2023, before expanding to 1.8% in 2024 and by 2.5% in 2025.
Higher mortgage rates have hit the housing market, causing potential buyers to retreat.
The Financial Conduct Authority (FCA) has said that approximately 200,000 mortgage borrowers are behind on payments as of June 2022, and now a further 356,000 mortgage borrowers could face payment difficulties by the end of June 2024.
The economic conditions are causing sellers to bring down on their asking prices to secure a buyer as mortgage rates are still keeping house hunters away.
In the up to £500,000 housing price bracket, 60% of properties were sold below the asking price in February, according to the Royal Institution of Chartered Surveyors.
For properties priced between £500,000 and £1m, the percentage being sold below asking price jumped to 71.5%.
The majority of the sales were within 5% of the asking price rather than anything significantly greater, the report said.