Is now a good time to buy a house? It’s a question we often get asked. With the UK in recessionary times, and mortgage rates higher than they have been for a while, you might be tempted to wait, but is that the right thing to do? Let’s have a look at the factors you need to think about.
What is happening to house prices?
You may have seen the headline “UK house prices fall at their fastest pace since 2020” recently, or at least something similar. According to the Nationwide house price index, UK house prices fell 1.4% month-on-month in November 2022, following a 0.9% drop in October. However, this fall, caused in part by interest hikes, the cost of living crisis, and worry about economic slowdown, follows a period that has seen strong house price rises.
Whilst no-one knows exactly what is going to happen to house prices, average house prices may indeed fall further. Or they may not. And that is part of the problem when it comes to answering the question “Is now a good time to buy a house?” It depends on why you are buying a house and what the alternatives are.
The ‘rent versus buying’ factor
It can be tempting to adopt a simplistic view that the correct answer to the question is to wait until prices are at their low, and then buy. However, there are (at least) 3 reasons why this may not work.
- You will only know when prices were at their low, long after they have risen again
- When house prices fall, there are often fewer houses on the market to choose from
- Whilst you wait for that low, you are paying the costs associated with living somewhere else
For those who are renting, there is a very obvious cost associated with waiting for the mythical low point in the market. Rent. Keeping it simple, hoping that house prices will fall by £1,000 a month, whilst paying £1,000 a month in rent, is not really a net gain.
Especially as the rental market is becoming increasingly expensive. The ONS reported that annual rental costs for private tenants rose by 3.8% across the UK in the 12 months to October 2022, with data from Rightmove showing some areas of the country have risen by more than 20%.
This is another big risk of waiting in rented property until the ‘right’ time to buy – the increasingly large chunk of your monthly salary you’ll give away in the meantime!
The ‘finding the right house’ factor
One key factor in answering the question we posed, is have you found a house that meets your needs, and that you would be happy to buy? The criteria might be finding a dream home for the next ten years, or a buy-to-let property that can provide an income, or simply a house that allows you to escape from living with your parents. If you have found the right house, then the answer to the question is almost certainly ‘yes’. Remember, in a market where prices may fall, it can be easier to negotiate a discount from the buyer, something virtually impossible in recent months and years.
The ’how much can I afford’ factor
Another important thing to understand is how much you can afford. This is a mixture of your deposit, and the amount of money you can (or wish to) borrow via a mortgage. Online calculators are useful for giving you a rough estimate. Rising interest rates have pushed up those of mortgages, and borrowing costs are now more expensive than they have been for some time, even if below historical averages.
Predicting future interest rates is hard for even professional investors, so we offer no opinion. What we do often see as positive, is the use of affordable fixed rate mortgages to remove the risk of interest rate fluctuations. Using a whole-of-market mortgage broker to understand which mortgage best suits your needs and circumstances, will help establish how much you can afford.
What about negative equity?
We often hear from people who are worried about negative equity, where the market value of their house is less than the outstanding balance of their mortgage. In the 1990’s and early 2000’s negative equity was caused by the combination of buoyant housing markets, very low (or even zero) deposits, and sudden economic shock. Whilst widely reported as a problem, it only really impacted people who needed to sell, or move house, quickly. As the economy improved and house prices rose again, the issue went away.
In today’s market, with the requirement for non-zero deposits, more stringent checks on affordability and where an economic shock has already been experienced, the risk of negative equity, whilst still possible, is perhaps lower than in previous decades. However, if you think house prices may decline steeply, and that you may need to move house in one or two years, then it is certainly something to think about.
So, is now a good time to buy a house?
To try and give you a simple answer to a question that only you can answer, ‘yes, probably.’ If you have found a house that meets your needs and that you can afford, then there is probably no reason to delay a purchase. Certainly, if you are a first-time buyer incurring the (increasing) cost of renting, it seems logical to use that money to contribute to your mortgage, rather than to a landlord. You also have the advantage of being seen as a ‘cash buyer’ (once you have a mortgage agreed) and as such may be able to negotiate a discount on the purchase price.
One last thought, for those suffering the understandable angst of deciding if now is a good time, where do you think house prices will be in 25 or 30 years? If the answer is ‘considerably higher’, then all the more reason that the answer to the question we posed is yes!
About Key Solutions
Here at Key Solutions, we believe taking out a mortgage should be easy. Why shouldn’t it?
So, when people say buying a home or getting a mortgage is one of the most stressful things ever, we say, come and speak to us. Our whole team put their heart and soul into turning every person’s dream into a reality. It’s what we’re here for and what we’re known for. We believe everyone deserves the highest quality financial advice, no matter what their circumstances. Our company ethos is ‘We are here to make life easier and better for everyone’ and we really mean it!
As a trusted whole of market broker, we have access to every mortgage product on the market, as well as access to exclusive rates you won’t get by going direct to a bank. Our advice to you is backed by our unique unconditional service guarantee, which means if you are not happy with the service that we provide, just tell us why and we will immediately refund any fees that you have paid us. If we say you qualify for a mortgage, then we will stand by that decision and provide a 100% mortgage guarantee, so you can get the funding you require. If we don’t, we will refund any associated cost you have incurred.
To find out more about how Key Solutions can help you, please use our online calculator, or get in touch. In fact, why not do both? We look forward to hearing from you.
