House price growth and property transactions set to slide, OBR claims

Higher mortgage rates and stagnating wages will limit house price growth in 2026, the Office for Budget Responsibility (OBR) has claimed.

The OBR, which monitors the Government’s economic and fiscal performance, released its latest outlook in the aftermath of the Autumn Budget.

It said the outlook for the economy and public finances remain uncertain and has revised its own house price forecasts.

The outlook for house prices remains highly sensitive.”

The OBR has predicted that average house prices will grow by around 2.1% in 2026, down 0.3 percentage points compared with its March forecasts.

It is also predicts that average prices will rise by 2.5% in 2027, 0.5 percentage points below its previous predictions.

The report says: “The outlook for house prices remains highly sensitive to the path of mortgage rates, the evolution in real incomes, and the impact of planning and regulatory changes on housing supply.”

The OBR is also forecasting that the Your First Home scheme could marginally raise house prices by stimulating housing demand, but suggested this will be limited.

Property transactions

The OBR is also anticipating that property transactions will grow from around 1.2 million in 2026 to around 1.3 million in 2031.

The number of transactions across the forecast period is around 4% lower than in the March forecast, “as higher mortgage rates are expected to weigh on activity.”

As a result, property transaction taxes – or Stamp Duty – are forecast to raise £17billion in 2026- 27, a 0.6% decline relative to 2025/26.

Relative to the March forecast, the OBR says property transaction tax receipts are expected to be around £3.2billion lower in 2026/27 and an average of £3.9billion a year lower over the rest of the forecast.

The OBR says: “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.”

Income tax on rents

The OBR report warns that an extra two percentage points on income tax for rent collectively risks leading to a steady rise in rents.

The report says: “Potential landlords are less likely to enter the market, reducing long-run rental supply, which risks a steady long-term rise in rents if demand outstrips supply – which we think is more likely than not.

“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. Such rises in rents would offset at least some of the reduction in the commercial viability to landlords from the measures introduced in recent years.”