With a volatile financial market impacting property prices, interest rates, and mortgages, you might be wondering if now is the right time to buy.
According to BBC News, November 2022 saw the largest fall in UK house prices since June 2020. While this might appear to be good news for those looking to buy, it does follow a period of growth in house prices.
Why have house prices fallen?
During the Covid pandemic, a number of factors contributed to a surge in house prices. These included:
– a desire for more space, and rural living.
– the stamp duty holiday.
– low mortgage rates.
However, since the recovery from Covid, house prices are now starting to fall. Again, there are a number of reasons for this.
Following the contentious mini-budget announced in September 2022, mortgage rates rose dramatically due to an increase in the Bank of England’s base rate. This led to a reduction in the number of mortgages offered by lenders and an increase in monthly payments. On the 3rd November 2022, the Bank of England raised the base rate to 3%, the highest it has been since 2008, with further rises predicted into 2023. That means, for example, that someone looking to borrow £200,000 with a deposit of 10% over a two year fixed period, would have monthly repayments of £1290, around 50% more than they would have paid a year ago, when the average monthly repayment for this type of mortgage was circa £900. These rising rates make borrowing a lot more expensive, preventing many first time buyers from moving onto the property ladder.
The rise in mortgage rates is also squeezing household incomes, limiting the amount people are able to put in savings. This comes at a time when household incomes are also being stretched by rises in energy, fuel and food costs.
What will happen to house prices in 2023?
It’s hard to guarantee what will happen in the future but experts are predicting that more rises in interest rates could mean that it will be more difficult for people to find an affordable mortgage deal next year. This could mean the demand for houses will reduce, evening out house prices.
Should you buy now?
Landlords looking for a long-term investment may be in a better position to buy a house now, as demand for rental properties looks set to continue rising. One way of spreading the cost of investing in a house is to buy with a partner, family member or friend, but if you’re doing this, it may be necessary to complete a floating deed of trust with a solicitor to protect everyone’s individual interests in the property. Solicitors firms such as Parachute Law can help to draft such deeds which outline each party’s responsibility and interests.
If buying a house is part of a long term plan, then changes in the market should bother you less, but if it’s a short-term investment, you may be better off holding off until house prices are more stable. If your finances are feeling stretched, you might also want to consider delaying to see if house prices fall further, reducing your potential mortgage and the interest you’ll pay. However, ultimately, the decision to move depends on your personal circumstances.