House prices may fall by 9% between the end of this year and the third quarter of 2024, says the Office for Budgetary Responsibility (OBR).

It puts this down to “higher average mortgage rates” on the mortgage debt held by households.

This data is included in its latest economic and fiscal outlook paper, published today.

The OBR expects house prices to rise “slightly” faster than nominal incomes from 2025, putting this rate at 2.6% a year, while the house-price-to-earnings ratio will come to 7.

However, the report explains there is “significant uncertainty” over this forecast, citing volatility in the bond yields that dictate mortgage market pricing.

The report also says that the average interest rate on outstanding mortgages will peak at 5% in the second half of 2024 and then retreat to 4.6% by the forecast horizon – in this case, between 2027 and 2028.

“Due to the relatively large share of fixed-rate mortgages in the total (around 83 per cent in the second quarter of 2022 versus 51 per cent in 2007),” explains the report, “higher rates on new mortgages take time to feed through to higher average mortgage rates on the stock of debt.”

Late last month, Lloyds said it was preparing for an 8% fall in property prices in 2023.