The Office for Budget Responsibility has lowered its house price growth forecasts for 2026 and 2027, citing elevated mortgage rates and stagnating wage growth as constraining factors for the UK property market.
In its latest economic outlook, released following the Autumn Budget, the OBR revised average house price growth for 2026 to 2.1%, down 0.3 percentage points from its March forecast. For 2027, the watchdog now predicts growth of 2.5%, a reduction of 0.5 percentage points from previous estimates.
Transaction volumes under pressure
Property transactions are forecast to increase from approximately 1.2 million in 2026 to 1.3 million by 2031. However, this represents a 4% decline compared to the March forecast, with the OBR attributing the reduction to higher mortgage rates dampening market activity.
The lower transaction volumes are expected to impact Stamp Duty receipts significantly. Property transaction taxes are forecast to generate £17 billion in 2026-27, representing a 0.6% decline compared to 2025-26. Relative to the March forecast, receipts are projected to be £3.2 billion lower in 2026-27 and an average of £3.9 billion annually lower over the remainder of the forecast period.
The watchdog noted that “changes are largely due to the lower-than-expected in-year receipts for both residential and commercial sectors and reductions to the forecasts for house prices and property transactions.”
Rental market implications
The OBR’s report also addressed the potential impact of an additional two percentage points on income tax for rental income, warning this could contribute to upward pressure on rents. The analysis suggests potential landlords may be deterred from entering the market, reducing long-term rental supply.
“Landlords are likely to pass on more of these costs to renters in the long-run through a combination of some current landlords leaving, thereby giving more price setting power to remaining landlords, and greater long-run flexibility to raise rents,” the report stated.
This development follows recent government tax measures affecting property owners, which have raised concerns about buy-to-let viability. The taxation changes come at a time when mortgage market infrastructure continues to evolve, potentially affecting transaction efficiency.
Market sensitivity factors
The OBR emphasised that house price forecasts remain “highly sensitive” to several variables, including the trajectory of mortgage rates, real income evolution, and the impact of planning and regulatory changes on housing supply.
The watchdog also assessed the potential impact of the Your First Home scheme, concluding it could marginally increase house prices by stimulating demand, though the effect is expected to be limited.
The revised forecasts reflect broader economic uncertainty and suggest a period of modest growth for the UK property market, with affordability constraints and financing costs continuing to shape market dynamics through the remainder of the decade.
