The housing market appears to be at its peak. We are seeing record house prices after two years of unprecedented demand and high competition among buyers. Many people are starting to wonder if they should wait until prices fall to purchase a property.
Since December 2021, interest rates have gone up three times now standing at 1% following last week’s rise from 0.75%. There are signs that the property market will start to slow down or even fall, and the latest interest rate rise can already be felt in the mortgage market as mortgage costs have risen.
With inflation eating away at savers nest eggs, a drop in incomes and the rising costs of energy, fuel and food, we are in a cost-of-living crisis.
Does this make now a bad time to buy a home and should you wait for prices to fall?
House price growth, according to Nationwide, stood at 14.3% in February and 12.1% in March. The recent rate rise has caused mortgages to be more expensive and this should slow down house price growth in the coming months. Predictions from Capital Economics show that mortgage rates could rise from 1.8% in March to 3% next year. How much it will fall is difficult to predict – with many market commentators believing it will be a modest fall and simply a price correction.
Although interest and mortgage rates would still be low in historical terms, it will come as a shock to those who are relatively new to the property market and used to very low rates.
Just as there are forecasts that house prices will fall next year many believe that the market will simply slow down progressively over the next few years. The strong employment market and mismatch in supply and demand will continue to underpin property values.
Any fall in house prices is usually an indicator of a wider economical downturn and first-time buyers are usually the hardest hit in these market conditions. Even if homes are cheaper, mortgage rates and associated costs will be more expensive. According to analysis by Hamptons, the average first-time buyer purchasing a typical home worth £229,000 with a 10% deposit will be paying an extra £612 compared to when the interest rate was 0.75%. So even if property prices drop, monthly repayments will be higher. It’s important to get sound advice from a mortgage broker who can work out the numbers – because waiting to buy could cost more in the long run.
For those who are renting, continued high levels of demand are pushing rents up even further. Therefore, for anyone who believes they will be better off buying than renting, now should be as good a time as any to make the transition to home ownership. Waiting for a house price crash could end up costing a first-time buyer in the long run if this doesn’t happen. In addition, Capital Economics predicts that inflation will hit 8.7% this year, eating into any deposits buyers have managed to save.
For existing homeowners, there appears to be a rush to fix mortgages for 5 or even 10 years. According to Twenty7Tec, last month almost 7,000 people searched for a 10-year fixed rate mortgage – a 72% increase on the same month last year and a 25% increase in those looking for a 5-year fixed rate. The number of people who were looking for 2- and 3-year fixed rate mortgages fell by more than 50%. With borrowers’ outgoings rising every month – and set to increase further when the fuel price cap rises in October – borrowers are seeking stability with their mortgage outgoings.
We strongly advise you to get independent mortgage advice if you’re not sure whether to wait or buy now – we can look at your circumstances and help you work out how much you will be paying now, and how much you could pay if interest rates continue to rise but the housing market simply slows down rather than seeing big house price falls. Contact us today.