House prices predicted to grow 2.5% annually, according to OBR

House prices are predicted to rise annually from 2025 by the Office for Budget Responsibility (OBR) in response to the government's Autumn Budget.

Beyond 2025, house prices are expected to grow by around 2.5% per year, helped by nominal wage growth and interest rates that are predicted to fall over the coming years.

We look at everything the OBR predicted that could affect those buying or selling houses and help those wondering 'How much is my house worth?'.

House price rises above initial expectations

The OBR's Economic and Fiscal outlook says that UK house prices to rise modestly in the short-term before seeing annual rises of 2.5% after 2025.

According to the OBR's latest forecast, house price growth is expected to ease slightly from 1.7% in 2024 to 1.1% in 2025, but due to lower interest rates and a reduced housing stock prices to rise at a faster rate than previously predicted.

The HBR say that in 2024 house prices have already risen by roughly 3% in the first half of 2024, leaving average prices above the OBR’s initial expectations from March.

By 2028, the average house price in the UK is projected to reach £310,000, approximately 2.5% above previous estimates.

Mortgages also predicted to rise

The OBR also predict that mortgage rates are set to rise gradually, with the average rate on existing mortgages projected to increase from around 3.7% in 2024 to a peak of 4.5% in 2027, then stabilise at that level through the forecast period.

Due to the prevalence of fixed-rate mortgages, which make up about 85% of the market, recent changes in the Bank Rate, falling from 5% to 4.75%, are likely to impact the overall mortgage stock slowly.

The Bank of England estimates that roughly two-thirds of fixed-rate mortgages have already been adjusted since the beginning of this interest rate cycle, with the remainder expected to reset by the end of 2026.

Overall, mortgage rates over the forecast period are expected to be approximately 0.3 percentage points higher than initially projected, reflecting a slightly more elevated Bank Rate outlook.

Rising property transactions by 2028

The OBR also foresees an increase in property transactions, with quarterly transactions rising from around 275,000 in 2024 to 350,000 by the end of the forecast period.

The OBR report says that the "pace of transactions is currently higher than anticipated", largely driven by strong demand in the early months of 2024. However, the OBR expects a marginal dip in transaction growth in the medium term as fewer new homes are added to the housing stock.

However, housing starts, a key indicator of housing supply, are forecasted to gradually recover from a low of about 100,000 in 2024 to around 160,000 by 2029.

Over the entire forecast period, this would bring the total number of new homes to 1.3 million, though the government’s proposed changes to the National Planning Policy Framework and new planning reforms could potentially accelerate growth.

House prices hit record highs in October, Halifax say

UK house prices have hit a record high as October saw a modest 0.2% increase in the average price, marking the fourth consecutive monthly rise, according to Halifax.

This brings the annual growth rate to 3.9%, down from 4.6% in September, but still enough to push the typical property price up to £293,999. This figure surpasses the previous peak of £293,507 set in June 2022, at the height of the “race for space” trend following the pandemic.

Amanda Bryden, Head of Mortgages at Halifax, noted the resilience of the UK housing market despite economic pressures.

“Average UK house prices nudged up +0.2% in October, continuing the positive momentum of recent months,” she said.

“That house prices have reached these heights again in the current economic climate may come as a surprise to many, but perhaps more noteworthy is that they didn’t fall very far in the first place. Despite the headwind of higher interest rates, house prices have mostly levelled off over the past two and a half years.”

Rightmove have reacted to the Bank of England's decision to cut the bank rate to 4.75% from 5% and have predicted this will cause “average mortgage rates [to] drift up a little in the short term, before starting to fall back again".

Tim Bannister, Rightmove’s Director of Property Science, observes that prior Bank Rate cuts spurred a surge in property activity as mortgage rates lowered, giving buyers the confidence to act.

“After the last Bank Rate cut, we saw a surge in home-moving activity, as mortgage rates trickled down and those home-movers looking for signs that rates might ease further were given confidence to get moving,” Bannister notes.

However, he anticipates a more restrained reaction to the latest announcement, as it aligns with general expectations and arrives during a seasonally slower period for the housing market, partly due to stamp duty rising to 5% for second homeowners.

Despite this potential pause, Bannister remains optimistic about the trend for mortgage affordability moving into next year. “Even if we don’t see an immediate boost in activity, today’s news should support the optimism that we’re heading in the right direction, and that affordability will continue to improve in 2025,” he concludes.

Those planning on buying a house can take a look at our house viewing checklist as well as look at our guide on building surveys.

Tim Bannister

Tim Bannister joined Rightmove in 2010, initially working in our lettings division before transitioning his focus to insights. As the current Director of Property Science, Tim leverages data, technology, and analytics to create distinctive insights that inform and guide property-related decision-making processes.