The trend to work from home is expected to keep house prices more affordable for first-time buyers in the next few years.
The Office for Budgetary Responsibility predicts house prices will fall from their peak in the fourth quarter of 2022, before rebounding in the second quarter of 2024.
By the end of 2025 they are forecast to rise by 2.8% year-on-year, with uplifts of 3.6% in 2026 and another 3.6% in 2027.
Remote working, triggered by the pandemic, will permanently change the housing market, as it enables people to leave cities and live in the countryside.
Leading economist at the Office for Budget Responsibility, David Miles, says the situation will push up property values in rural areas, but lead to slower house price growth in city centres and London.
Why is this happening?
The Covid-19 pandemic has led to permanent changes to people’s working patterns, with many people now allowed to work remotely all or some of the time.
In the past, cities typically saw higher price rises than rural areas due to a mismatch between supply and demand, driven by employees wanting to live within easy commuting distance of their place of work.
But the ability to work from home has eased that imbalance, and instead led to greater demand for homes in the countryside, which by extension will lead to higher house price growth in these areas.
Who does it affect?
The trend is good news for first-time buyers. Earnings growth has failed to keep pace with house price rises for much of the past decade, making property increasingly unaffordable for those trying to get on to the housing ladder.
Slower house price growth not only gives earnings a chance to catch up, but it also means first-time buyers will not face the race to put together a deposit before they get priced out of the market.
The situation is also positive for those living outside of city centres, as it suggests house price growth will be more evenly spread going forward.
This should make it easier for people to relocate from the countryside to towns and cities if they choose to, as well as move between different regions.
What’s the background?
House price growth has already slowed down compared with previous years due to the impact of higher mortgage rates and the rising cost-of-living on affordability.
Our latest UK House Price Index found that buyer demand is currently below average in the Midlands, South East, South West and East of England, areas that have seen the highest house price rises in the past three years, which has impacted affordability.
Across the UK as a whole, house prices have edged down by 1.3% during the past six months, and are expected to remain broadly unchanged for the rest of the year.