It suggests that house prices are forecast to fall by 9% between the fourth quarter of 2022 and the third quarter of 2024, largely driven by higher mortgage rates as well as the wider economic downturn.

The report highlights that around 83% of mortgages are on fixed rates so it will take time to feed through to the wider market.

The OBR added: “As the economy recovers, house prices rise slightly faster than nominal incomes from 2025, at around 2.6% a year, and the house-price-to-earnings ratio settles at around 7%, somewhat lower than the ratio of 7.3% in our March forecast.

“There is significant uncertainty over this forecast given the sensitivity of house prices to mortgage rates and the recent volatility in the bond yields that drive pricing in the mortgage market.”

Its economic forecast shows it is expecting house prices to be up 10.7% annually by the end of this year but to then drop by 1.2% in 2023 and 5.7% in 2024.

The OBR suggests prices will be up by 1.2% in 2025, by 3% in 2026 and by 3.5% in 2027.