The data used by the OBR in the three working days to October 26, when markets were still reeling from the mini Budget has since been outflanked by more settled markets, according to Pantheon Macroeconomics, in an exclusive in the Daily Telegraph.
Pantheon Macroeconomics said it expected the effective mortgage rate on outstanding loans to peak at 3.7 per cent at the end of 2024, against the five per cent forecast by the OBR, the average rate across all existing deals.
The government forecaster expects the effective rate on existing mortgages to nearly double from 2.2 per cent in September 2022 to 4.3 per cent by summer 2023, and peak at five per cent across the second half of 2024.
This is a large jump from its expectations in March this year, when it expected the average rate to peak at only 3.1 per cent.
But Pantheon said that the OBR’s new prediction was “implausibly high” and a bit too gloomy, adding “we think it has overestimated the size of the hit from mortgage refinancing next year.”
The post-mini Budget market chaos means investors have since revised down their expectations for the peak in bank rate from five per cent to 4.5 per cent. Pantheon has forecast an even lower peak at four per cent – up from three per cent today.
Differences of opinion but house prices will fall
The OBR’s forecast also implies that nearly one in five outstanding mortgages will be refinanced every three months, where Bank of England data shows that the figure is closer to seven per cent – or one in 14 loans, Pantheon said.
Based on the slower rollover of loans and a lower bank rate peak at 4 per cent, the effective rate on outstanding mortgage loans will peak at only 3.3 per cent by the end of 2023 and 3.7 per cent by the end of 2024, Pantheon said.
The OBR also forecast a record 4.3 per cent drop in disposable incomes per person this tax year, which will be the largest since ONS records began in 1956. This will be followed by a 2.8 per cent drop in the next tax year – the second largest fall and only the third time the measure has fallen for two consecutive tax years.
Pantheon, by contrast, has forecast a smaller two per cent drop in disposable incomes next year.
However, Pantheon still expects house prices to fall by eight per cent – only marginally less than the nine per cent drop predicted by the OBR.
