The ‘small print’ analysis of the economy has been released by the independent Office for Budget Responsibility (OBR).
This is traditionally released at the same time as the Budget – but it often fails to make the same headlines.
Today’s OBR analysis makes mostly depressing reading for those seeking an improvement in the housing market.
On the Chancellor’s decision to increase property income tax for landlords by an extra 2% from next April, on top of the 2% rise announced a year ago, the OBR says: “The two percentage point increase in property income tax rates in this Budget will be implemented on top of the two percentage point increase announced at Budget 2025.
“Both of these measures will come into force from April 2027 and represent a material reduction in returns to private landlords. This follows various measures over the past 10 years that have also reduced private landlord returns.
“These measures collectively risk leading to a steady rise in rents through two effects. First, 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.
“Second, 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.”
House prices are expected to grow an average of 2% this year and 2.5% in 2027.
The OBR says these figures “would continue the recent trend of house price growth being below CPI inflation, largely driven by higher mortgage rates and stagnating real incomes.”
And the OBR says Your First Home, the government’s heavily trailed scheme for first time buyers, “could marginally raise house prices by stimulating housing demand.”
Transaction volumes are still expected to reach 1.2m this year and rise to around 1.3m by 2031 “as the housing market turnover rate returns to its assumed medium-term equilibrium that every house is transacted on average once every 24 years and as the housing stock continues to grow.”
The number of transactions across the forecast period is around 4% lower than the OBR predicted in March this year, as higher mortgage rates deter buyers.
And mortgage rates have their own gloomy prediction from the OBR. It says the average effective mortgage rate, currently around 4%, will rise to 5% by 2031, partly because there will be many borrowers rolling off fixed-rate loans agreed when rates were much lower.
“The stock of outstanding mortgage debt is around 85 per cent of household disposable income across the forecast period” reports the OBR.
“This is lower than the peak during the financial crisis, but higher than at any time before the early 2000s, when effective mortgage rates were significantly higher.
“…. Mortgage payments as a share of household disposable income are expected to rise to reach 4.25% in 2031, the highest since 2009 and more than double the 2021 level of 2%..
The OBR also has bad news for the government’s house building target of 1.5m new homes by mid-2029.
The report says: “The weaker profile for housing supply in the near and medium term also partly reflects the cumulative effect of regulatory and fiscal changes outside the planning system over the last decade, particularly since 2019.
“These policy developments have increased the cost, complexity, and timescales associated with residential development.
“These include measures aimed at improving building safety, such as the Building Safety Levy and Building Safety Regulator regime, environmental requirements such as Biodiversity Net Gain and nutrient mitigation schemes, and wider fiscal measures including the residential property developer tax and higher corporation tax rates.
“Taken together, these measures appear to have weighed on housebuilding activity to a greater extent than we had previously assumed.”
You can see the full 196-page OBR report, released today: https://assets.publishing.service.gov.uk/media/6ae1f7b839d29f3f9b9b3f36/economic-and-fiscal-outlook-october-2026-web-accessible.pdf
You can see the Budget announcements at a glance here.
This article is taken from Landlord Today