Is now a good time to buy a house?

Is now a good time to buy a house? That’s something many people might be asking as house prices start to show their first monthly decline since July 2021.

House prices have come down and could fall by as much as 9% by 2024 according to the latest forecast from the Office for Budget Responsibility. 

But, with interest rates rising and the UK entering a recession – is now a good time to buy a house, or should you wait?

Nationwide’s latest house price index showed annual price growth slowed to 7.2% in October, from 9.5% in September. The index also showed the first decline in house prices, which fell 0.9% month-on-month, the first fall since July 2021 and the largest since June 2020. 

Meanwhile, the latest Halifax House Price Index recorded a 0.4% monthly fall in house prices for October – the third month-on-month drop in the past four months and the biggest drop since February. According to Halifax, the average UK property now costs £292,598, down from £293,663 in September.

According to the the Royal Institution of Chartered Surveyors (Rics) says that UK house prices ground to a halt in October after more than two years of growth. 

Could this be a sign of house prices falling? The UK's biggest mortgage lender, Lloyds Banking Group, is predicting a housing market slump, with prices dropping 8% in 2023, and then stagnating for the following four years. The property platform Zoopla is also forecasting that house prices will fall next year, and puts the drop at 5%. The Office for Budget Responsibility expects house prices to fall, by 9% between the fourth quarter of 2022 and the third quarter of 2024. 

However, average mortgage rates are breaching 6% due to political turmoil, meaning some buyers may still find it difficult to buy.

Robert Gardner, Nationwide’s chief economist, said: “The market has undoubtedly been impacted by the turmoil following the mini-Budget, which led to a sharp rise in market interest rates. Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation. 

Average five-year mortgage rates breached 6% last month, due to the political turmoil. But rates are starting to come down.

Although the Bank of England is expected to raise interest rates again, mortgage rates are falling - the average five-year fix is now 5.95%, according to Moneyfacts - and could drop further as the recent economic uncertainty fades and the mortgage market settles down.

Change to stamp duty 

Chancellor Jeremy Hunt decided to keep the cuts to stamp duty announced by his predecessor Kwasi Kwarteng in his mini-Budget.  

However, in his Autumn Statement (17 November 2022), Hunt said these will be phased out from March 2025. 

The knowledge that the stamp duty cut is now only temporary might incentivise some buyers, but it may not be enough to combat rising interest rates.   

What’s happening with mortgage rates? 

Last month, mortgage rates hit levels not seen since the financial crisis as a result of Kwarteng’s disastrous mini-Budget. 

The average two-year fix stood at 6.55% while the average five-year rate was 6.43%, according to the data provider Moneyfacts, as at 24 October. These were the highest mortgage rates since 2008.  

Some mortgage providers have now repriced their deals following the arrival of Rishi Sunak as PM and Hunt as chancellor, which has calmed markets.  

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “As the average five-year fixed mortgage rate falls below 6% for the first time in seven weeks (5 October 2022 – 5.97%), borrowers who paused their home ownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.” 

She says rates could fall further still - but there is no clear answer as to how quickly that may be, and “borrowers may feel they have to be patient for a little while longer yet before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers.” 

What’s happening in the housing market? 

As borrowing costs have spiked, property deals are starting to fall through and there are some signs this stress is having an effect on house prices. According to the property portal Rightmove, average asking prices fell by £4,100 between October and November as more sellers accepted lower offers. It also revealed that annual house price growth had slowed to 7.2% from 7.8%. 

Zoopla said 11% of homes have had their price cut by more than 5% since September, and one in four (25%) have had some sort of cut over this period. Demand has plummeted 44% since the mini-Budget, and sales are down 28% in a year. 

Rics said in its latest survey that new buyer inquiries fell for the sixth month in a row in October. It now takes 18 weeks on average to sell a home, up from 16 weeks a year ago. 

There are also expectations of another rate rise when the Bank of England next announces its interest rate decision on 15 December. 

The Bank of England increased rates by 0.75 percentage points on 3 November, taking the base rate to 3% in an attempt to control inflation, which is running at 11.1%.  

Zoopla says if mortgage rates fall back to 4% or 5%, house prices could drop by 5% in 2023. This would wipe out eight months of growth (13 months in London and six months in Wales). But if mortgage rates were to stay above 6%, we could see double-digit price falls.  

With prices cooling, it is understandable that many potential buyers may be asking if now is a good time to buy a house.    

The million-dollar question: when is the right time to buy a house?  

When is the right time to buy a house is the million-dollar question. Or perhaps the £262,282 question, given the average property price in the UK right now according to Nationwide.  

The main concern is interest rates, and here at MoneyWeek, we have always argued that low rates are a key driver of house prices.    

Karen Noye, a mortgage expert at the wealth manager Quilter, says higher interest rates will make mortgages less affordable and could dampen innovation in the mortgage market, meaning first-time buyers have a smaller pool of options to choose from.    

There are already significantly fewer mortgage products compared to last year. In December there were more than 5,300 residential mortgages on the market; this figure fell dramatically to just 2,258 at the height of the market turmoil last month and has now recovered slightly to hover at around 3,100, according to Moneyfacts.  

Those on fixed mortgages will be protected from future rate rises by the Bank of England, but those on tracker mortgages will see interest rates rise immediately.   

Years of ultra-low interest rates have supported property prices, but in the “new era of rising rates and more unpredictability we might see tracker and variable rate mortgages become more attractive if a drop in interest rates is then forecasted in the future,” Noye adds.    

Higher rates are not the only reason buyers might be questioning if now is a good time to buy a house.    

Property affordability and the cost of living crisis are both weighing on the purchasing power of buyers. High energy costs are also a factor.    

While the Energy Price Guarantee is being extended in April 2023, it will also become less generous, with the typical average household seeing their average annual energy bill rise from £2,500 to £3,000. This will continue to eat into disposable incomes.  

Is now a good time to buy a house for first-time buyers?  

The stamp duty cut may incentivise some homebuyers. Sarah Coles, senior personal finance analyst at the investment platform Hargreaves Lansdown, explains: “The stamp duty cut could save a significant chunk of cash – particularly if you are a first-time buyer and the property would have been over the [previous £300,000] threshold.   

“If you’re able to plough any money you had saved for stamp duty into a property deposit, you may be able to borrow less, reducing your monthly payments, which could make a big difference when you’re trying to make ends meet in the coming months.”  

Meanwhile, a severe shortage of new properties will keep house prices elevated and could put the brakes on any looming housing crash.  

So when is a good time to buy a house?  

With so much uncertainty, it can be tricky working out whether or not to buy a house.  

MoneySavingExpert’s Martin Lewis says that for those who have found their dream home and have triple-checked that the mortgage and bills are affordable, now could be a good time to buy a house,  

For other people, buying now may not be a good idea, especially if you are doing it because of scaremongering that the UK will fall into recession this year.  

Lewis explains: “If you’re doing this because ‘this isn’t the house I want but I feel I should do it now before everything goes wrong and it all goes belly up’... don’t buy your house. We’re working with so many variables, there are no firm right answers”.   

According to Coles, buyers have all sorts of reasons for needing to move, and in many cases, even at really uncertain times, it’s not going to change their plans.   

“If you’re about to have a baby in a studio flat, you will still need somewhere bigger. However, if you are buying, you need to be comfortable that you won’t need to move again in a hurry. If house prices were to fall, if you’re planning to stay in the property for years to come, you have time for them to recover. It’s only if you need to move again fairly quickly that you face difficulties of dwindling equity or even negative equity.”  

Noye at Quilter says predictions aren’t always accurate and failure to apply your own judgement depending on your personal circumstances can lead to lost returns.    

“While the outlook for the property market doesn’t look too rosy, the same was said just after the Brexit vote with reports that the market may crash then and had people been put off they would have missed out on some incredible house price growth, particularly over the last two years,” she says.    

So trying to time the market could be a big mistake.    

There’s no telling what will happen to property prices over the next couple of years. Rising mortgage rates could force prices lower, especially if the economy gets weaker.    

However, wages are rising, the supply of properties is limited and around a third of households own their homes outright. That’s a lot of equity in the bank of mum and dad to support first-time buyers.    

All in all, the answer to the question of whether or not it is a good time to buy a house really depends on your personal situation.    

If you’ve found your dream property, have the money and are ready to go, then there’s no need to hold back. But if you’re unsure, there’s no need to rush. It might be better to hold back and take stock of things next year.

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