We Buy UK Houses

Is now a good time to buy a house?

House prices have gone through the roof in recent years, but they are now falling amid soaring inflation and rising interest rates.

Demand for homes has halved compared to this time last year, according to property portal Zoopla, with sellers forced to accept discounts averaging 4% to reach a sale.

Figures also show that house prices have fallen over the past four months. So should you wait to see what happens to the housing market or bite the bullet?

This article includes:

  • What is happening to house prices?
  • Will house prices crash in 2023?
  • Is now a good time to buy a house?
  • Should first-time buyers delay buying a home?
  • What will happen to mortgage rates?
  • How will the relaxing of mortgage affordability rules affect me?
  • What is the best time of year to buy a house – and the worst?
 

What’s happening to house prices?

The housing market still has some momentum and prices have climbed over the past year. But as mortgage rates surged and the cost of living crisis applied a squeeze on household budgets, that rate of property price growth is now stalling, even falling.

 

According to Zoopla, the number of new property sales agreed has fallen by 28% over a year, with demand for homes plummeting 50% in the same period.

The website found that house prices in rural areas suffered most, reversing the pandemic’s spike in demand for country homes as families moved away from urban areas.

 

Once a month, Nationwide, Halifax, Rightmove and the Office for National Statistics (ONS) publish figures on average house prices. We outline the latest figures in the table below.

SourceHouse price figuresHow the figures are calculated
HalifaxIts most recent figures showed a 2.3% fall in prices in November, the biggest monthly drop since 2008. The annual rate of growth had slowed to 4.7% from 8.2%, taking the average UK house price to £285,579Halifax uses data of house purchase transactions it has financed to measure market changes
NationwideIts figures for December put the average house price at £262,068, a 0.1% fall from November’s level. Annual growth also fell to 2.8% from 4.4%Nationwide uses data from mortgages it has approved to generate the cost of a typical house
RightmoveAverage house prices reached £371,158 in October, an increase of 0.9% from September. That’s up 7.8% from October 2021Rightmove uses house prices agreed at the point when a mortgage is granted for properties listed on its website to provide its house price index. It has a much larger sample size than both Halifax and Nationwide
The ONSIt recorded a 12.6% jump in house prices in the year to October 2022, a rise from the 9.9% it reported the previous month, but down from the July peak of 14.8%The ONS uses data from the Land Registry to record changes in the property market

What is causing house prices to fall?

House prices are now falling because of the squeeze on household finances, caused by the cost of living crisis and rising mortgage rates.

On 15 December, the Bank of England raised the base rate to 3.5%. This is the highest it has been since 2008. Analysts predict that the base rate could reach 4.75% next year.

For someone taking out a two-year fixed-rate mortgage with a 10% deposit, average interest rates are around 6%. On a £200,000 mortgage this means that monthly repayments would be a whopping £1,290. That’s 50% higher than November 2021 when you would be paying closer to £900 a month.

Rising rates make it more expensive to borrow money which means fewer potential buyers can afford mortgages. The Office for Budget Responsibility (OBR) predicts that house prices will fall 9% over the next two years before rising again in 2025.

Mortgage approvals for house purchases fell to 66,800 in September from 74,400 in August, according to the Bank of England.

Meanwhile the number of house sales hit 114,200 in November, 12% higher compared to the same month in 2021, according to HMRC. These figures are related to property sales which take months to complete, so they don’t factor in the mortgage chaos following the 23 September mini-budget.

Before house prices started falling at the end of 2022, the market had defied the odds: not just surviving but positively thriving. This was caused by pandemic-related factors such as:

  • Pent up demand
  • Desire for more space and rural living
  • Low mortgage rates
  • The stamp duty holiday (which ended in October 2021)

House prices had continued to grow since Covid restrictions ended, with unemployment remaining low and demand for properties outweighing supply. But it is now starting to stall.

Mortgage payments remain most affordable for those with a large deposit, which isn’t great news for first-time buyers who tend to have small downpayments.

Nationwide said a 10% deposit is now more than 50% of a typical first time buyer’s income.

Will house prices crash in 2023?

Figures show that house prices are starting to fall. This decline is expected to continue in 2023.

There are a number of reasons for this:

  • Interest rates have increased from their record lows since the end of 2021, making mortgages more expensive and reducing demand in the housing market
  • Following the government’s controversial September mini-budget, the Bank of England has warned it will not hesitate to increase interest rates further to rein in high inflation.
  • A number of lenders withdrew mortgage deals after the mini-budget, reducing the availability of home loans
  • We are in a cost of living crisis as inflation is rising, making goods and services more expensive compared to a year ago. Over-stretched budgets mean fewer people will be able to save enough to buy
  • Rising costs, especially energy bills, could mean that some people struggle to make their mortgage repayments and need to sell up. If that happens then an increased supply of properties coming onto the market could combine with waning demand to force down prices
  • House prices rose extremely fast during 2021 and could “correct” by falling just as quickly should interest rates keep rising and the availability of cheap mortgage deals become still more elusive

We outline the latest house price predictions.

As time goes on, rising interest rates could hit the housing market by making it:

  • More expensive to borrow money
  • Harder to find a cheap mortgage deal

If there are fewer cheap loans available, there might be less demand for houses, causing a possible house price correction.

Should I buy a house now or wait?

Some people, especially first time buyers, will be hoping for house prices to fall further to make it more affordable to buy.

Interest rates, which are already at their highest level since 2008, are expected to continue to go up as the Bank of England tries to get a handle on soaring inflation.

With borrowing becoming more expensive, buyer demand is starting to fall.

While you might save money on the purchase price of a house, rising mortgage costs could actually cancel out any savings.

And now that we face a prolonged recession, the number of sellers could drop again too as people become more risk-averse.

There are already indications of homeowners putting off their next move. This is partly because of a shortage of available properties to buy to get on the next rung of the housing ladder but also because they are questioning whether their finances would be able to cope with the costs.

While the property market has been resilient during the pandemic, there are now signs that the housing market is slowing down in the face of rising costs.

Iif you are looking to buy soon, another consideration is what would happen should there be a dramatic drop in house prices, as is expected over the next two years. Could a fall wipe out the value of your deposit and leave you in negative equity?

Whether it’s a good idea to buy or hold off will depend on your own circumstances, so you need to weigh up the pros and cons carefully. In the next section we help you decide whether it’s worth delaying your house purchase.

If you are confident that you would be able to keep up the mortgage repayments, buying now might make sense. This is particularly true if you plan to live in that property for some time, rather than treating it as an investment, in which case you would be at the mercy of a market in which prices may not recover in the short term.

Should first-time buyers delay buying a home?

If you are looking to buy your first home but worried about mortgage rates and house prices, here are the arguments for and against buying a home in the current market.

Yes to delaying your house purchase

  • Mortgage rates have been increasing and more rises are likely to come. By the time you have found a property to buy and start shopping for a mortgage, rates could have gone up again, meaning your estimated repayments could be even higher than they are now
  • The consensus is that house prices will fall over the next two years, so anyone who buys now risks seeing the value of their first home plummet
  • If you’ve only put down a small deposit and house prices fall, you could end up in negative equity. Though this would only be an issue if you wanted to sell your home
  • Should the predictions come true and house prices continue to fall, by holding off you may not need such a big mortgage loan and the minimum deposit by the lender required may be smaller too
  • If you have the option to live with family, you may be able to save a larger deposit. This would increase the equity in your home when you do come to buy and make you eligible for a cheaper mortgage deal.

No to delaying your house purchase

  • Rents continue to reach record highs so by waiting you could end up paying a lot more in rent than you would in mortgage repayments
  • Owning a home means you don’t have to worry about your landlord hiking your rent or suddenly giving you notice to move out of your home
  • Moving out of a rental property means you would be paying off your own mortgage, rather than someone else’s
  • While there are plenty of predictions about house prices, we can’t know for certain how much they will fall by, so you could be waiting for a long time for them to hit rock-bottom
  • House prices will likely take a substantial hit, but another downside of waiting is that this might come at the expense of being able to secure a cheaper mortgage
  • If you think you will want to stay in your home for at least three years then you could ride out the suspected downturn in house prices
  • If you’re putting down a large deposit then this reduces the chance of your ending up in negative equity
  • Now could be a good time to find a bargain; if a seller wants a quick sale before rates peak next year then you might find that being a first-time buyer gives you a greater advantage as you have no chain to hold up the process

Read our guide to buying your first home.

Is it cheaper to rent or buy?

In the past, it was usual to rent a home to save money in order to put towards buying a place of your own. But rising rental prices, particularly in big cities, have made that very difficult.

In November 2022, the average monthly rent in the UK was £1,175, according to the Homelet Rental Index. That’s an increase of 11.1% over a year.

If you take London out of the equation, the average rent in the UK is now £977, up by 9.9% from November 2021.

According to the latest data from the ONS, private rental prices have increased at their greatest annual rate for more than five years, as demand continues to heavily outweigh supply.

Mortgages are also getting more expensive because of rising interest rates. We outline the average mortgage rates. Also get a rough idea of what you would pay a month with our mortgage repayment calculator.

However, mortgage rates could still be lower than the cost of monthly rent.

Yet affordability is still a big problem for many first-time buyers, with the average property costing 9.1 times the average person’s salary. In 1997 properties cost just 3.5 times average earnings.

That can make it even harder for tenants to save enough for a house deposit when the payments to their landlord are so high, leaving them stuck in rental properties until they can set enough money aside.

We weigh up the pros and cons of renting versus buying here.

What will happen to mortgage rates?

In an attempt to combat soaring inflation, the Bank of England has increased the base rate to 3.5% in mid-December.

This was the ninth consecutive rate rise in a year, and it is already making home loans much more expensive.

The Bank of England’s base rate is expected to peak at 4.75% in 2023. So mortgage rates are likely to go up over the next year.

If you are coming off a fixed-rate mortgage deal soon and looking for a new one, you will likely struggle to find a deal as good as you are on now; so expect your monthly repayments to increase.

Variable rate mortgages, which make up about a fifth of home loans, are directly linked to changes in the base rate so customers will immediately see a rise in their bills.

Find out more about the relationship between inflation and interest rates.

What interest rates will I pay?

The rate you can get from your mortgage lender will be driven by:

  • The size of your deposit
  • Your credit score
  • The type of loan
  • The length of the mortgage deal.

Saving up as big a deposit as you can will increase your mortgage options and help you get the best mortgage deals.

How to find the best mortgage for you

When considering a mortgage, you can choose between:

  • Fixed-rate loans: you know exactly how much your monthly repayments will be during the mortgage deal
  • Variable-rate loans: your payments could fall if interest rates drop but they could also shoot up if rates rise.

Mortgage approvals for house purchases fell to 66,800 in September from 74,400 in August, according to the Bank of England.

Lenders have been reigning in the range of products they are offering, meaning home buyers are finding it harder to find a mortgage that suits their financial situation.

If you’re looking for a mortgage, you might want to speak to an adviser. We outline the top-rated mortgage advisers.

Or Times Money Mentor can help you choose a mortgage with this free comparison tool:

Find mortgage deals with our best buy tool

Times Money Mentor has teamed up with Koodoo Mortgage to create a mortgage comparison tool. Use it to benchmark the deals you can get — but if you want advice, it’s best to speak to a mortgage broker.

This is how the tool works:

  • You can search and compare mortgage deals
  • It only takes a couple of minutes and no personal details are required to search
  • Once you’ve got your result, speak to a mortgage broker if you need advice
Compare mortgages
Product information is provided on a non-advised basis. This means that no advice is given or implied and you are solely responsible for deciding whether the product is suitable for your needs.

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

Traditionally, spring is a good time to buy a house because there are more homes on the market.

March is generally a good time to buy a house when the days start to get longer the weather starts to get warmer. Many homeowners who want to sell fast are advised to put their property on the market in March as there are more house hunters.

People are often keen to complete before everyone heads off on summer holidays, leaving August particularly quiet.

Listings, or buying opportunities, pick up again during September and October, before dropping off at the end of the year. This is because homeowners tend to stay put for Christmas.

The worst times to sell tend to be August and December.

Relaxing of mortgage affordability rules

In August 2022, lenders were able to remove one of the affordability tests when assessing people for mortgages.

The Bank of England wants to make it easier for home buyers to take out a home loan. It consulted on removing the rule in the first half of 2022 and the change came into effect in August.

Lenders previously had to check that borrowers would be able to afford a 3 percentage point rise in the interest rate on top of their lender’s SVR (standard variable rate).

Introduced in 2014, in the wake of the financial crisis, this rule was designed to stop the banks from suffering hefty losses if borrowers ran into financial difficulty and couldn’t pay off their loans.

It is estimated that 6% of borrowers have had to take out smaller loans because of the rule.

How does removing the the stress test affect me?

  • It could help more first-time buyers secure mortgages
  • Some borrowers will be able to take out larger loans than they otherwise would have
  • But there are concerns that this will further inflate house prices by increasing demand

A second affordability rule, which prevents high risk people from borrowing more than 4.5 times their income, will remain in place.

The Financial Conduct Authority, the regulator, will also continue to enforce its own rule which requires lenders to make sure borrowers can afford a 1 percentage point rise in their borrowing.

Fees when buying a house

Costs include legal fees and any banking fees for transferring your deposit. We round up all the costs involved in this article.

Stamp duty can be hefty, depending on the property price. We have a guide on stamp duty.

You may also have to pay a fee if you use a mortgage broker who charges for their service. We have more on this in our article: what are the hidden costs of buying a house?

*All products, brands or properties mentioned in this article are selected by our writers and editors based on first-hand experience or customer feedback, and are of a standard that we believe our readers expect. This article contains links from which we can earn revenue. This revenue helps us to support the content of this website and to continue to invest in our award-winning journalism. For more, see How we make our money and Editorial promise

Content retrieved from: https://www.thetimes.co.uk/money-mentor/article/good-time-buy-a-house/.

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