Is it the right time to buy a house? Ask any homebuyer right now in the midst of market chaos and the answer will likely be no.
It’s been a rollercoaster since the Chancellor’s mini-budget of 23 September: with house prices still high, the sudden disappearance of hundreds of mortgage transactions and lenders consequently increasing the cost of mortgages, offering interest rates above 6% (as of October 12).
Add to that the base rate would reach over 5% in the first half of 2023 and we envision mortgage transactions becoming even more expensive – so expensive, in fact, that a significant number of buyers may not meet affordability. criteria lenders to borrow from.
Still, there’s good news: Capital Economics warns UK house prices could drop around 5% over the next two years, while Credit Suisse expects prices to fall up to 15% based on current interest rate projections.
So, with the promise of falling property prices, it’s understandable that potential buyers will wonder if now is the right time to buy a home.
Buying a home is likely to be the biggest financial commitment of your life, so you should go into the buying process with your eyes wide open for current real estate market conditions.
We explain what to consider if this is you.
Rising mortgage rates
The choice of mortgage offers is gradually increasing again: Moneyfacts had 2,969 offers on October 12, compared to 2,533 on October 7; however, this number is still down sharply from the 3,961 produced on Mini-Budget Day.
However, lenders have increased the cost of these transactions, with the typical two-year fixed rate exceeding 6% for the first time in 14 years and a typical five-year rate exceeding 6% for the first time in 12 years, according to an analyst. of data. Money Facts.
The average two-year fixed mortgage rate rose to 6.46% on October 12. That’s up from 6.07% the previous week – and 2.25% a year ago.
Ruth Emery of The Money Edit describes how her mortgage rate offer changed dramatically in 12 days: “12 days ago I was offered a 5-year fixed rate at 3.93%. Today my broker told me that the same offer is now priced at 5.74%. »
This dramatically increases the mortgage burden for those who take out these mortgages today.
Change affordability criteria
Higher rates aren’t the only reason you might wonder if now is a good time to buy a home. Many lenders are tightening affordability tests as they take into account the reduced purchasing power of buyers amid ever-increasing energy bills, higher food prices and lower disposable incomes.
This means lenders are cutting the maximum they will lend to a potential buyer or homeowner looking to remortgage – down to tens of thousands of pounds.
Although a reduction in stamp duty may seem useful – after all, first-time buyers can save a maximum of £6,250 on the purchase of their home – it may in fact become unnecessary due to increasing mortgage transactions costs and tighter accessibility tests.
Timing the market
It is unclear what will happen to house prices and mortgage rates over the next two years.
Rising mortgage rates could force prices down, especially if the economy weakens. However, there is a severe shortage of new properties which has the potential to keep property prices high: the average estate agent has only around 36 properties on their books, according to the Royal Institution of Chartered Surveyors.
Property expert Andrew Montlake says it looks likely property prices will fall over the next few months, but property shortages are a problem. “There is always the conundrum of supply and demand, and whatever the circumstances, the reasons people want to buy and move will remain, while the shortage of goods should help keep prices from falling. in a spectacular way.”
Karen Noye, mortgage expert at Quilter, said that in the “new era of rising rates and more unpredictability, we could see variable rate and variable rate mortgages become more attractive if a drop in interest rates interest is then provided for in the future”. We know more about what to consider when looking at two-, five-, and 10-year patches.
Financial expert Martin Lewis says that although there are “so many variables”, buyers need to be fully prepared. “If you have a decent deposit, and you’ve found a house you like, and you have a mortgage that’s affordable for you, and you’re going to stay in that property for a long time, go ahead and buy your house.”
However, for the vast majority of people, buying now is not a good idea, says Lewis, especially if you are doing so because you fear the UK will fall into recession later this year, which is widely expected. “If you’re doing this because ‘this isn’t the house I want but I feel like I should do it now before everything goes wrong and everything goes wrong’…don’t buy your house . many variables, there are no firm right answers”.
Is it the right time to buy a house? If you have the financial resilience to put yourself through the tough conditions we’ve outlined and need to buy a home now, the answer might be yes. But if you’re not sure, it might be better to wait.