Over the last few years, house prices have continued to rise, however they are now falling. With high inflation and rising interest rates, prices dropped by 1.5% in December 2022, the fourth successive monthly fall, and more of the same appears to be on the way. At the same time, mortgage approvals have also fallen, as borrowers face a difficult combination of higher mortgage interest rates and rising energy bills among the ongoing general cost of living crisis.
Is this a good or bad situation for property buyers looking to purchase? Well, it depends on your individual situation. Lower house prices will make your purchase more affordable. That said, with interest rates expected to rise further to keep inflation in check, borrowing is going to become more expensive, which will dampen buyer demand. And faced with lower sales prices, many sellers will likely decide to hold onto their assets for now, meaning fewer properties come onto the market, restricting supply.
As always, there’s no right or wrong answer; you need to carefully weigh up all the arguments for buying now versus buying later. If you can get a good mortgage deal (or have independent funds available), now may be a great time to buy a home, especially if you are looking for a place to live long-term rather than investing for short-term returns. It’s always worth speaking to an independent mortgage adviser, to talk through all the options. We are able to offer a free advisory broker service at Julie Twist. Our broker is voted #1 on the UK Trustpilot and would be happy to discuss options with you.
If you don’t mind putting in a bit of work, a property in need of repair may be of interest. Beware though that so-called doer uppers can often require more work than you think, so make sure you have a survey carried out. As one expert recommends, “the purpose of these expert building inspections is to identify any property defects and flag up areas of concern, and provide professional recommendations for necessary repairs or refurbishments.”
If you’re looking to buy your first ever home and have been saving up for a mortgage deposit, you need to consider the pros and cons of buying in the current market.
In an attempt to tackle rising inflation, the Bank of England increased the base rate nine times in 2022, and it is expected that this will peak at 4.75% in late 2023. As a result, mortgage rates have already risen significantly and are likely to go up even more this year. Customers with variable mortgages will feel an immediate uplift in their monthly payments while those coming off fixed-rate deals are unlikely to find comparable deals, so their monthly repayments will also go up.
If you are looking for a new mortgage, the rate you will be offered by lenders will depend on the size of your deposit, the length of the mortgage term, the type of loan you are after, and your credit score. Saving up a large deposit is the best way to increase your mortgage options and ensure that you are eligible for the most competitive deals.
Interestingly, mortgage affordability checks were simplified in August 2022. Specifically, the Bank of England removed the requirement for lenders to ‘stress test’ that borrowers could afford a 3-percentage point interest rate rise on top of their lender’s standard variable rate. This change in affordability checks may help more first-time buyers secure mortgages, while other borrowers may find they can take out larger loans than previously possible.
That said, the key affordability rule which prevents high-risk individuals from borrowing more than 4.5 times their income remains firmly in place. In addition, the industry regulator will also continue to enforce its own rule, requiring mortgage companies to ensure that borrowers can afford a 1-percentage point rise in borrowing costs.
Assuming you are actively looking for a property to buy this year, when is the best month in which to buy? Traditionally, spring sees a surge of properties coming onto the market and buyer demand starts to peak from March, when the days get longer and the weather gets warmer. Finding a home in March or April means that moving house in the summer becomes a realistic possibility.
The market tends to slow down in July and August, on account of the holiday season, then picks up again in September and October, with the prospect of completing the purchase by Christmas. The worst time to sell a property (and arguably the best time to pick up a bargain) tends to be August and December. New Year resolutions may of course also encourage the idea of ‘New Year, New House’ making the remaining winter months the start of another market opportunity.
Written By Annie Burton
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