According to a prominent economist at the Office for Budget Responsibility, it is anticipated that affordable rural areas will experience higher growth in house prices, while city centers are expected to witness a slower rate of growth.

The rise of remote working is anticipated to have a positive impact on the affordability of house prices for first-time buyers in the coming years. The Office for Budget Responsibility predicts a decline in house prices from their peak in the fourth quarter of 2022, followed by a recovery in the second quarter of 2024. Projections indicate that by the end of 2025, house prices will experience a year-on-year increase of 2.8%, with further uplifts of 3.6% in both 2026 and 2027.

Remote working, which gained momentum during the pandemic, is expected to bring about permanent changes in the housing market by allowing individuals to relocate from cities and opt for a countryside lifestyle. According to David Miles, a leading economist at the Office for Budget Responsibility, this shift will lead to an upward pressure on property values in rural areas, while house price growth in city centers and London is anticipated to slow down.

Why is this happening?

The Covid-19 pandemic has brought about lasting transformations in people’s work habits, with a significant number of individuals now being granted the option to work remotely, either partially or entirely.

Traditionally, cities experienced more pronounced increases in house prices compared to rural areas, primarily due to a disparity between supply and demand driven by employees seeking residences within convenient commuting distance of their workplaces.

However, the ability to work from home has mitigated this imbalance, resulting in increased demand for homes in rural areas. As a result, house price growth in these countryside locations is expected to be higher, reflecting the shift in demand.

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.

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.

Key takeaways:
• The housing market will undergo permanent changes due to the rise of remote working, allowing individuals to relocate from cities to rural areas.
• This shift is expected to result in higher price growth in rural areas, while cities may experience lower growth, leading to a more balanced market for homebuyers.
• According to the Office for Budget Responsibility, house prices are projected to decline from their peak in the fourth quarter of 2022 but rebound in the second quarter of 2024.