Is Now A Good Time To Buy A House?

If you are looking to buy a house, recent developments may have left you asking if now is actually a good time to buy a house, especially if you are a first time buyer.

What is happening in the housing market in the UK?

After two years of rapid house prices growth will the market continue to rise or has it reached its peak? The House Price Index data from September 2022 shows that In England, house prices remained static since August 2022. An annual price rise of 9.6% means that the average property price now sits at £314,278. According to Halifax, the average UK property now costs £292,598, down from £293,663 in September. So is this the start of a drop in the property market?

With predictions of the market change over the next 12 months ranging from a small increase in price to a 30% reduction, it is understandable to feel confused.

Rapid increases in interest rates, combined with political uncertainty, rocked the market, in September, which resulted in rising mortgage rates to over 6%. To put this into perspective, rates of around 2% back in 2021 meant the monthly payment on a £200,000 mortgage taken over 30 years would have been £739. The same mortgage at 6% would be £1,199. This has resulted in a drop in demand in recent months, with many questioning if it is the right time to buy.

According to iNews, agents have reported seeing decreases of around 50 percent in the number of house viewings and enquiries since interest rates rose.

Will house prices go down in 2023?

So will a drop in demand automatically lead to a reduction in house prices? Well, it makes sense that if there is no demand, prices must fall. But there is still demand and there is also a shortage of stock. For example, lots of investors view a panicked market as the perfect time to buy and get a ‘good deal’. Also, rents are rising rapidly, which may lead buyers to pay a higher interest rate rather than have to pay more on rent.

Of course, as we have seen, world events can change on a daily basis, so at some point, a large house price drop may occur, but when and by how much is almost impossible to predict. So let’s look at the facts. Rightmove has reported house prices falling by an average of 1.1% (-£4,159) in November 2022. However, this drop is actually in line with the usual seasonal trend for this time of year. Even taking this drop into account, the average house price is still 7% higher than the same time in 2021. Although low-interest rates, stamp duty holidays, the pandemic making people want more outdoor space and a shortage of supply have sparked rapid increases in price over the past couple of years, rises in interest rates in 2022, the cost of living crisis and political uncertainty has cooled the market with potential buyers being panicked.

However, with prices in line with seasonal variation, this hardly means it is the start of a market crash and more a return to normal levels, which will be welcomed by many buyers, who would otherwise be priced out of the market if house prices continued to rise at the same rate as in 2021. With greater political stability and lenders starting to reduce fixed rate mortgage products, it may even be that the 30% drop that some believe will happen, won’t actually happen.

What will happen to mortgage rates?

In recent months the mortgage market has been panicked due to the instability of the political and economic horizon. However, things seem to be settling down, with many lenders now starting to reduce fixed-term interest rates. The reason for this is that whilst variable and tracker mortgages move in line with Bank of England base rate changes, fixed rates are not calculated in the same way.

They are made based on longer-term predictions and take into account the swap rate, which is the rate at which the lenders themselves borrow money. A new Primer Minister and a seemingly more stable political situation, have resulted in recent falls in fixed-rate mortgages, with some predictions that they may fall to 4% in 2023, meaning people buying a home could get a much cheaper fixed-rate mortgage deal.

Further increases in interest rates (and the Bank of England is expected to confirm another rate rise in December 2022) will therefore not necessarily mean increased in fixed-rate mortgages going forward. This isn’t the case for tracker or standard variable rate mortgages, which may on the surface, appear to be on a lower rate than a fixed rate product, but will increase as the base rate increases.

How will the relaxing of mortgage affordability rules affect me?

In August 2022, the mortgage affordability test, which was introduced in 2014 to test the borrower’s ability to pay the loan back over a period of time, was scrapped. The LTI limit is still in place, which limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5.

This means that first-time buyers may be able to be accepted for a larger mortgage. On one hand, this is helpful, given that house price growth has far exceeded home growth over the last decade, with the average house costing seven times the average UK salary. However, taking on a larger mortgage will also mean a larger deposit is needed.

Is now a good time to buy a house?

The good news with the market cooling is that now could be the perfect time to get a great deal that would have been almost impossible last year, back when people were turning up to a viewing with 20 other people and putting a sealed bid on a house. When there is panic in the market, competition is removed, which means that more sellers will be open to offers. It is, of course, important to make sure you can afford the property, even if interest rates rise further, but if you are in a position to buy then there is no better time to buy than when you are ready. Time in the market far outweighs trying to time the market.

The main risk of being now if the market does crash is negative equity. This means that the value of your home is less than the mortgage on it and if you sold at this point you would owe the lender additional money. There are several ways to mitigate this. One is to put a larger deposit down, another is to add value to the property. The third is to view your purchase as a long-term investment and be prepared to live there for at least 5 years if need be.

What is the best time of year to buy a house – and the worst?

Traditionally, spring and early autumn tend to be popular times to buy, with summer and winter being quieter. This could one the perfect time to sell as fewer properties come on the market, which means less competition. One thing to bear in mind with a winter purchase is the risk of delays due to services closing down over the festive period. March typically sees an increase in the number of homes for sale. It is possible to get a good deal at any time in the year. Rather than thinking about what month it is, pay attention to how long the property has been on the market and how quickly the seller wants to sell.

Things to ask yourself before deciding to buy:

• Do you need to move now (for example for work?)
• Can you comfortably afford to move now?
• Can you afford rises in ongoing costs such as energy and mortgage repayments?
• Are you prepared to live in the property for at least 5 years?

If you are thinking of buying a house, look at our step-by-step guide to buying a house and contact us if you need any further information.