Is now a good time to buy a house given the fact that nationally house price growth is slowing, and mortgage rates have risen?
After two years of rapid house price growth, signs of a slowdown are on the way. That sounds like good news for anyone thinking about buying a house. But there’s a snag. Mortgage rates have been climbing rapidly at a time when households are already struggling to cope with the rising cost of living.
Pros
- Buyers could get a discount off the property asking price. Given the volatility of the economy, rising mortgage rates and the ongoing cost of living crisis, home buying demand has cooled. That means properties are taking longer to sell and with fewer offers, sellers are more likely to agree to a discount off their asking price.
- Discounted mortgage rates still offer value. Low rates from around 2.5% can still be snapped up if borrowers choose a discounted mortgage deal which is a type of variable rate. That means your rate can go up and down during the term of your deal. Fixed rates, which are currently around 5.5% to 6%, stay the same. Interest rates are forecast to rise again to combat soaring inflation. But those with breathing space in their budgets may want to risk choosing a cheaper variable rate over the stability of a higher fixed rate to be rewarded with a lower interest rate for longer.
- During the past 14 days we have seen mortgage offer interest rates being once again reduced by lenders
- The population continues to rise and demand for housing remains robust for the foreseeable future especially with low unemployment
Cons
- Risk of negative equity. Homebuyers who made an offer on a property when prices were still rising fast may find themselves in negative equity if house prices drop next year. The downside of negative equity is that you can’t sell your home until prices rise again. If you’re not planning to move, it is less important. Your lender will not treat you any differently if you continue to pay your mortgage. Paying down your mortgage is another way to get out of negative equity.
- Rising mortgage rates. This time last year, the average five-year fixed rate was around 2.5% but it’s a much different picture now. Throughout October, mortgage rates have climbed almost daily according to analysis by data firm Moneyfacts. Presently high street lenders are offering five year fixed rate deals at around 5% Rising mortgage rates reduce the size of the mortgage households can afford to borrow.
Should I pull out of a property purchase?
Whether you pull out of a property purchase or not will depend on your circumstances. If your job is in jeopardy, you’ve suffered a loss of income or there are other reasons impacting your ability to move then pulling out could be the right decision. But if it’s a knee-jerk reaction to the economic volatility, it could be wise to stay the course.
Buyers pulling out now may also be offered a lower mortgage amount next year.
Buyers can pull out without facing a financial penalty up until the point they exchange contracts with the seller. If the buyer pulls out after exchange, the seller can keep their deposit and claim for damages. If you pull out before exchange you’ll lose any money you have paid out such as solicitor and surveyor fees.
Are house prices going up or down?
Average UK house prices peaked in November 2022 at around £293,000. But the trend of runaway house price growth looks set to end.
Nationwide and Halifax reported that house price growth stalled in the early part of this year , with prices actually falling slightly in May 2023. er the next two years house prices are expected to fall as buyers’ budgets remain squeezed by higher mortgage rates and rising inflation due to high energy and food prices, largely caused by Russia’s war in Ukraine.
Estate agent Knight Frank predicts a 5% fall next year and again in 2024, taking house prices back to the same level as last summer.
In summary, house prices rose quickly and are now finding their own level again, rather than dropping in value. Many corrections like this happen in markets such as the stock market Owning your own home is still an important part of the British way of life.
What will happen to mortgage rates?
The Bank of England has been increasing the base rate for many months and it now stands at 4.5%. This has been the cause of the gradual rise in mortgage rates since the start of the year.
Given the current economic volatility, it’s tricky to predict what will happen to rates next.
Capital Economics forecasts that the base rate will peak at 5% before the Bank of England begins cutting rates in 2024 bringing the average mortgage rate down to just over 4% by the end of that year.
Is now a good time to sell my house?
Households considering selling their home may be hesitant amid talks of house price falls. However, there is still a lack of homes available to buy which experts say will prevent a house price crash. In Sheffield we are still desperately short of housing stock.
Buyers’ budgets are now more constrained, so sellers may have to lower their expectations. But as average property prices have risen by more than £60,000 over the last two years – many sellers will have room to negotiate.
What factors should be considered before you buy a house or sell your own?
Before you decide to buy or sell your home – consider why you made the decision in the first place. If it’s still valid, say experts, stick to it.
Anthony Codling says: ‘Homeowners should not base long-term housing decisions on short-term concerns. If you’re moving because it’s right for your family or your job then what may or may not happen to interest rates and house prices should not change your decision.’
Local respected Estate Agents covering both ends of the spectrum say
- Last year phenomenal viewings, prices attained and number of viewings
- 100 plus viewings on some properties
- Often went to Best and final offers
- Some semidetached houses went way over asking the asking price of £525,000 to £680,000
- Sheffield properties over 5-10-15-20 years are still seen as a good investment
- Currently the market has slowed rather than slumped
- Crystal ball predictions are that they may dip a bit further but not by a lot
- Decent properties in a good area and good school catchment areas will always sell.
Here at LFBB we can’t predict the future, but we can assure you of security with the process of buying or selling your home. Speak to us first and let us guide you.