Is now a good time to buy a house?

Homebuyers are facing uncertain times as mortgage rates remain high but house price growth has slowed. The property market tends to kick into action in the spring, so is now the right time to buy a new home?

Data from property website Zoopla suggests housing market got off to a strong start in the first couple of months of 2024.

Its latest house price index shows UK buyer demand was up 11% annually in February and sales agreed were up 15% year-on-year.

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However, it said a many sellers, particularly in London and the South East, are taking discounts of up to 5% or more in some cases to secure a sale as buyers continue to struggle with higher mortgage rates.

That may be good news for buyers looking to secure a decent deal on a property.

It comes as house prices fell for much of 2023 but appear to be recovering slowly.

The latest Nationwide house price index shows average prices rose by 1.2% annually in February, while Halifax has recorded a 1.7% rise, albeit slower than the 2.5% posted in January.

Meanwhile, the latest house price index from the Office for National Statistics (ONS) shows house prices fell 1.4% in the 12 months to December 2023 while annual declines slowed to 0.6% in January.

Even if prices are lower, mortgage rates climbed above 6% during 2023.

They are starting to drop but remain higher than what many buyers are used to.

This may reduce your purchasing power if you are looking to buy as a mortgage could be more expensive than you had expected and you may have to borrow a lower amount or find a cheaper property.

Meanwhile, the Royal Institution of Chartered Surveyors believes lower mortgage rates are now helping home sales recover but house prices continue to struggle.

It’s important to note that each house price index is calculated differently, but they all seem to agree – the property market’s pandemic boom has ended.

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.

The impact of higher interest rates

Buyers retreated from the market last autumn when the mini-Budget pushed the cost of borrowing up to levels not seen since 2008.

Interest rates on mortgage products have since fallen, but they remain close to the 5% mark – around two times what they were early 2022.

The Bank of England (BoE) hiked interest rates to 5.25% in 2023 to control stubborn inflation but has frozen the base rate for the past five meetings, raising hopes of a cut this year and possibly lower mortgage pricing.

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. On top of that, there's a chance the UK is entering a recession, which affects buyer confidence.

What’s happening with mortgage rates?

Despite higher interest rates, mortgage rates have fallen from their peak above 6% during the summer months. Currently the average two-year fixed deal stands at 5.81, while the average five-year deal is priced at 5.39%, according to Moneyfacts.

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.

Buyers have been helped by inflation dropping to its lowest level for two years, while the energy price cap fell in October - reducing typical gas and electricity bills - but gas and electricity prices rose again in January.

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 15 days, according to Moneyfacts.

Mortgage brokers have also warned that pricing may rise again as swap rates are increasing as hopes of an impending interest rate cut from the Bank of England fade.

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 research shows overall buyer demand was up by 8% annually in March, ahead of the usually busier spring market.

But sellers are becoming a bit more confident with their pricing, and the average asking price for newly-listed properties rose by 1.5% in March - the highest level for 10 months.

The property portal has warned that more realistically-priced properties are selling faster though.

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 struggling to sell their properties, Zoopla suggests.

Richard Donnell, research director for Zoopla, said UK sellers are typically having to accept offers around 95% of the asking price as buyer purchasing power has been reduced by higher mortgage rates.

“Our data shows we are still locked in a buyers market, so it’s unlikely that we will see prices rise in 2024 at a national level. But at the same time, they haven’t fallen much over the last 12 months, despite mortgage rates more than trebling since 2021," he says.

“We believe that house prices still need to adjust to higher mortgage rates, even though these are now falling and appear to be on track to get into the 4%-4.5% range later this year.  

“This means sellers have to remain realistic on what someone will pay for their home and seek advice from an estate agent on how best to get their home ready to sell.”

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 though. 

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.

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.

This threshold is reducing back to £300,000 in March 2025 though, 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, especially 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 Halifax suggests the monthly cost of renting is now cheaper than what a homeowner would pay each month in an equivalent property due to high mortgage rates.

This could make it worth waiting for mortgage pricing to be come more affordable.

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.