After two years of steep house price growth, signs of a slowdown are on the way, which is good news for anyone thinking about buying a house. But there’s a snag: Mortgage rates have been climbing rapidly at a time when household budgets are already under pressure from rising costs of living.
Is it a good time to buy a house?
There are many factors to consider when deciding whether or not now is a good time to buy a house.
Current State Property Market
First, we need to look at the current state of the property market.
- Last year, the average five-year fixed rate was about 2.5%. However, as of October 20, mortgage rates have been climbing steadily according to Moneyfacts, a data firm. The average five-year fixed rate has reached 6.51%, the highest level since September 2008. Rising interest rates can reduce the size of the mortgage that households can afford to take on.
- As the economy remains volatile, rising mortgage rates and the ongoing cost of living crisis continue to affect home buying demand. This has slowed down home sales, causing properties to be on the market for longer periods of time and with fewer offers, sellers are more likely to accept a lower price for their property.
- Borrowers can still find mortgages at low rates, around 2.5%, if they choose a discounted mortgage deal. The rate can go up and down during the term of your deal, but fixed rates remain steady at 5.5% to 6%. Inflation is climbing, 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 enjoy for longer periods of time..
Financial Capability
We need to think about your personal financial situation. If you have a lot of debt or other obligations (like student loans), now may not be the best time for you to buy a home because it will likely cost more than renting does and require you to take out a loan with higher interest rates. If you have enough money saved up for a down payment on a house and don't have any big debts looming over your head, then buying might be a great option!
Plan on Staying
We need to think about how long we plan on staying in our current location and whether or not we want to move again soon after purchasing a house.
For homebuyers who purchased a property when prices were rising rapidly, negative equity may be a risk if house prices drop next year. However, if you are not in a position to move or refinance, even if your lender will not treat you any differently if you continue to pay your mortgage. Another way to get out of negative equity is to make payments on your mortgage.
Buying something that requires significant upkeep is not worth it if. If you're planning on relocating soon, it would be better to rent than purchase a home because it will allow you more flexibility when it comes time to move.
Are house prices on the rise or falling?
According to Land Registry figures, the average house price has increased by more than £60,000 since the start of the pandemic, taking the average to around £295,000. However, the trend of runaway house price growth is expected to end.
BLUESTONE PROPERTIES
Bluestone Properties is a estate agency based in South London. If you're buying or selling a property, feel free to contact us on 0208 355 3405 and we'd be happy to help.
