OBR report - More houses and higher house prices - looking odd!

Released as part of the process for the Spring statement of 26th March, the OBR report contains an analysis of the housing market in its Economic and fiscal outlook.

There is a contradiction in the report regarding housing. The OBR estimates

that housing supply will increase;

that mortgage rates will rise and stay high;

that house prices will continue to rise.

This is odd in several respects, the Government thinks greater supply will reduce house prices. High interest and therefore mortgage rates usually act as a brake on house prices.

Yet house prices will rise - a bitter blow to those who think that government policy will introduce cheaper housing!

Earnings are expected to increase and house prices will follow the same direction. Higher earnings result in higher house prices!

Yet that government policy will not deliver cheaper housing (and probably not more houses), is entirely understandable as house price increases and housing problems are not due to a lack of supply. At the same time the government expect more foreign investment - and that will mean more foreign investment in housing - pushing up values.

Time for a new policy that is based on evidence not assertion!

The OBR report

Housing supply

2.58 Cumulative net additions to the UK housing stock are forecast to be 1.3 million from 2025- 26 to 2029-30, reaching 305,000 a year by 2029-30 (Chart 2.18). Relative to our October forecast, total net additions across the five-year forecast period are 137,000 higher. This difference reflects the combination of a small downward revision in our pre-measures forecast and a large positive impact from the planning reforms:

Mortgage rates

2.61 Average interest rates on the stock of mortgages are expected to rise from around 3.7 per cent in 2024 to a peak of 4.7 per cent in 2028, then stay around that level until the end of the forecast. [Chart 2.19 shows mortgage rate at just under 5% in 2030].

House prices

2.62 The average house price in the UK is expected to rise over the forecast from around £265,000 in the final quarter of 2024, to around £295,000 in 2029. House prices rose at an annual rate of 3.9 per cent in the final quarter of 2024, 0.9 percentage points higher than in our October forecast. We expect this momentum to ease over the year as higher interest rates continue to weigh on demand. House price growth is 2.8 per cent in 2025 and averages 2.5 per cent thereafter, broadly in line with growth in nominal earnings. We expect the 0.5 per cent increase in the housing stock as a result of the planning reforms will reduce the average house price by around 0.8 per cent in 2029.

Monetary policy, gilt yields, and equity prices

2.5 Based on market pricing, Bank Rate (taken over the 10 working days to 12 February) is expected to fall from its current level of 4.5 per cent to 3.8 per cent from mid-2026 onwards