In a blow to borrowers, the Office for Budget Responsibility (OBR) forecasts that interest rates will fall at a slower rate than previously expected, making mortgages more expensive. Following the Chancellor’s Spring Statement, the OBR said that the average interest rate on current mortgage stock is expected to rise from 3.7 per cent in 2024 to 4.7 per cent in 2028, staying at that level until 2030. This is 0.2 percentage points more than the OBR forecast after October’s Budget.
While twelve-month CPI inflation increased to 2.8 per cent in February from 3 per cent in January – slightly lower than expected – unfortunately it is expected to rise again this year before maintaining an average of 3.2 per cent in 2026. Given the Bank of England is tasked with keeping inflation at 2 per cent, it has a job on its hands trying to find the balance between that and economic growth.
At its March meeting, the Monetary Policy Committee (MPC) voted eight to one in favour of holding base rate at 4.5 per cent, with only one member voting for a quarter-point cut to 4.25 per cent. In its minutes, the MPC noted that global trade policy uncertainty has intensified with the US making a range of tariff announcements, while other geopolitical uncertainties have also increased. Weak GDP growth and employment intentions are also a concern.
With all this going on in the background, it is even more remarkable that house prices and mortgage lending have continued to recover in recent months. The stamp duty concession, which ends this month, is partly thought to be behind this, with buyers bringing forward purchases in order to save thousands of pounds in stamp duty. Nationwide reports that house prices rose by 3.9 per cent in the 12 months to February, compared with 4.1 per cent in January. The lender also found a noticeable pick-up in transactions in the second half of 2024, with a 14 per cent increase on the previous year. Meanwhile, in its February report, Halifax noted a delicate balance with a last-minute rush on new mortgages ahead of the stamp duty changes but that some of the demand brought forward had started to fade as it was no longer possible to complete on a purchase before the stamp duty concession ended.
With property portal Right move reporting a decade-high choice for buyers as more sellers take advantage of the sunnier weather and come to market, this will likely keep prices in check to an extent. The number of sales agreed is nine per cent higher than this time last year, which is a positive for the housing market post-stamp duty increase, and the number of new sellers is eight per cent ahead of this time last year.
