Is now a good time to buy a house?

Interest rates are falling and the Autumn Budget is out of the way, so is now the right time to buy a new home?

Interest rates have been cut and mortgage pricing has come down from peaks of 6%, leading many to consider if now is a good time to buy a house.

It has been a tough year for the property market as sticky inflation at the start of 2024 kept the cost of borrowing high.

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That created a buyer's market as demand slowed and those who could afford to buy have been able to negotiate reduced deals.

But the rate of inflation has recently hit the Bank of England's 2% target and interest rates have been cut, prompting lenders to reduce mortgage rates.

This could make it cheaper to access finance if you want to move on or up the property ladder.

Homeowners may also become more willing to list properties if there is a chance of better offers but the increased demand could also push house prices higher.

So is now a good time to buy a home? We assess what’s happening in the market right now and show you what to look out for when it comes to deciding whether to buy a house.

A year of two halves

Homebuyers have faced a few big challenges during the first half of the year.

One is inflation. The cost of living measure remained high for much of the first half of 2024, reducing purchasing power for buyers.

The reduced demand has seen house price growth slow and average values were even falling at the turn of the year.

Even with lower price growth, high mortgage rates have also made it harder for homebuyers to access affordable finance.

The inflation rate finally started slowing towards the second half of the year, reaching the Bank of England's 2% target in May and June.

This initially boosted confidence, but it may have been dampened by the general election, which appears to have slowed parts of the market.

Inflation also ticked up slightly to 2.2% in July.

The second half of 2024 could bring better news, with political stability following Labour's landslide general election win and an interest rate cut in August and November has put the cost of borrowing at 4.75%, with hopes of more reductions.

Lenders even seem to be preparing for this by cutting rates and best-buy mortgage pricing fell below 4% in July for the first time this year, although they have ticked back up recently.

Rates are still higher than many buyers will have been used to though and the BoE has warned that borrowers on fixed rates will see their monthly repayments rise by around £200 on average by the end of 2024.

Higher borrowing rates undoubtedly make it more difficult for buyers to get onto the property ladder.

Tax rises in the Autumn Budget such as increases in capital gains tax may also hit buyer budgets.

What’s happening with mortgage rates?

Despite higher interest rates, mortgage rates have fallen from their peak above 6%. Currently the average two-year fixed deal stands at 5.52%, while the average five-year deal is priced at 5.28%, according to Moneyfacts.

Some of the best deals are lower though and HSBC currently has the lowest-priced five-year fix at 4.12% as of 29 November.

But rates remain significantly higher compared to the end of 2021 when the average two- and five-year fixes stood at around 2%.

That said, a number of bellwethers paint a more positive picture. The number of mortgage products on the market has increased and lenders are regularly cutting rates to attract borrowers.

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

Property affordability and the cost of living crisis are both weighing on the purchasing power of buyers. High energy costs are also a factor, and the price cap on gas and electricity bills rose in October.

If you do spot a decent mortgage rate that you can afford, it could be wise to move quickly and lock it in, as good deals don’t hang around for long. The average shelf life of a mortgage product is currently around 17 days, according to Moneyfacts.

What is happening with house prices?

Predictions of a house price crash this year have failed to materialise and many analysts ended up revising their forecasts upwards.

Estate agency brand Savills had last year predicted that house prices would fall by 3% this year but has since revised its forecast to annual growth of 2.5%.

Similarly, Knight Frank had forecast a 4% decline for 2024 but is now expecting prices to rise by 3%.

Zoopla is predicting a 2% rise in house prices this year and a 2.5% boost in 2025.

The market has been boosted by falling inflation and interest rate cuts that have injected confidence into the property market.

It may be easier and cheaper for homebuyers to access finance but the increased demand may also push up prices and annual growth has hit a two-year high in recent months.

The latest Nationwide House Price Index suggests annual house price growth slowed from 3.2% in September to 2.4% in October as buyers paused activity in the build-up to the Autumn Budget.

The Halifax House Price Index for October showed average values have now surpassed their pandemic peak, reaching £293,999.

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

Buyers may have been deterred from the property market due to the high cost of borrowing last year.

But falling mortgage rates are now bringing buyers back, Rightmove suggests.

Its latest house price index shows that while overall buyer demand was up in August and September, it slowed ahead of the Budget in October.

The property portal says more realistically-priced properties are selling faster.

If you can afford the high mortgage rates on offer, there is a chance that you will have more bargaining power as many home owners are still taking discounts on asking prices. But Zoopla warns the discounts are starting to narrow.

First-time buyer support

First-time buyers had benefited from the Help to Buy Equity Loan scheme, which provided government backing for 95% loan-to-value mortgages to purchase a new-build. This ended last year though.

There are other forms of support.

First-time buyers with an income below £80,000 - £90,000 in London - may be able to use the First Homes scheme.

This government-backed scheme provides homes at a 30% to 50% discount for local first-time buyers.

New build First Homes cannot cost more £250,000 - or £420,000 if the property is in London - after the discount has been applied, so it may be a bit limited.

The Labour government has also promised to make a permanent version of the mortgage guarantee scheme - which supports lenders to provide 95% loan-to-value mortgages to first-time buyers - with a Freedom to Buy scheme.

Additionally, since September 2022, first-time buyers don't pay stamp duty on the first £425,000 of a property up to a maximum purchase price of £625,000.

However, Labour has said it will reverse the threshold back to £300,000 at the end of March 2025, so it’s worth taking advantage of it while you can.

You could use a lifetime ISA to save tax-free for a mortgage deposit and get a government bonus on top, while lenders such as Skipton Building Society and Yorkshire Building Society have low deposit products aimed at first-time buyers.

So when is a good time to buy a house?

With so much uncertainty, it can be tricky to work 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, particularly if you are doing it because you think a recession is coming or if you would struggle to pay higher interest rates.

It is worth weighing up the costs of getting on the property ladder in the current climate though, compared with what you are currently paying if you are renting.

Research by Zoopla suggests falling mortgage rates have made buying cheaper than renting in most parts of the UK.

It may even be worth using a buying agent to help find a suitable property, especially if there is a lack of supply.

Research by property advisor platform First In The Door - which helps purchasers find a buying agent - shows half of UK adults mistakenly believe estate agents act for both buyers and sellers.

The research found 35% of people find buying a home stressful, compared with 28% of sellers.

Claire Whisker, founder of First In The Door - says a buying agent can provide "early access to off-market homes and advice on where to buy, to negotiating prices with estate agents and presenting offers in the best light."

According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, 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," she says.

"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.”

Karen 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.

Higher 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 as the year progresses.