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, and mortgage rates, begin to decline

Is now a good time to buy a house? That’s something many people might be asking as they wonder where UK house prices will go in 2023.

UK house prices fell for four months in a row last year, according to Halifax’s house price index, as cost of living pressures, coupled with rising mortgage rates, began to impact household finances and demand. 

Four consecutive months of decline meant annual house price growth for 2022 was a meagre 2.8%, according to Nationwide’s house price index. The average cost of a UK property now stands at £262,068.

The drop in house prices last year was triggered by the fallout from Kwasi Kwarteng’s disastrous mini-Budget in September. It spooked the markets and mortgage rates hit an eye-watering 6.65%.

But mortgage rates have fallen in recent weeks, and the market seems to have settled. Some brokers are even predicting mortgage rates will fall by as much as 25%, or even 30% by the end of 2023. 

We explore whether a house market crash is coming in our article -  House prices could fall 30% - should investors be worried about a repeat of 2008.  

“For those seeking to purchase a property and apply for a fixed rate mortgage in 2023, the current outlook is certainly more positive now than it was at the end of 2022,” says Pete Mugleston, managing director and mortgage expert at onlinemortgageadvisor.co.uk. 

“Experts are predicting a further slowdown in both house prices and average mortgage rates this year – in line with the Office for National Statistics’ latest House Price Index, which revealed that although house prices increased in the year to November, they were down from 12.4% in October. 

“Also, both Nationwide and Halifax have recently cut their mortgage interest rates, with Nationwide’s reduced by up to 0.20%; so, this’ll come as promising news, particularly for new borrowers.” 

We assess what’s happening in the market right now and whether now is a good time to buy a home.

Could house prices see a boost from falling interest rates? 

Buyers retreated from the market last autumn as interest rates on mortgage products spiked, but it now looks as if the market is starting to calm down. 

Interest rates are expected to go up again – we’ll find out by how much when the Monetary Policy Committee next meets on 2 February, but, at this point, another increase is pretty much certain. Experts currently expect rates to peak at 4.5% this year.

Despite higher interest rates, fixed-rate mortgages have fallen for the past two months, with many deals available at sub-6%. The average two-year fix stands at 5.6% while the average five-year deal is priced at 5.42%, according to the financial analyst Moneyfacts.

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

While higher borrowing rates undoubtedly make it more difficult for buyers to get onto the property ladder, some may be keen to complete a property purchase during this window of slightly reduced mortgage rates, before interest rates rise again this year. 

As well as rising interest rates, there’s also the fact that the UK is entering a recession.

So given all of this, is now a good time to buy a house, or should you wait?

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? 

Now that Jeremy Hunt and Rishi Sunak have calmed the markets, mortgage providers are once again starting to fight for customers’ business with attractive offers.   

Santander cut its rates by up to 0.2% this week, while Barclays reduced the rates on some of its product range by up to 0.27%

Last week Yorkshire Building Society reduced its fixed rate offerings by up to 0.75%. Principality Building Society also made cuts across the majority of its fixed products. 

Halifax, Nationwide and Virgin Money also all made cuts to their mortgage rates, by up to 0.20%, 0.20% and 0.73% respectively. 

Encouragingly, some brokers are predicting mortgage rates could fall by 25% this year. Analysis from wealth manager Quilter shows that given the predicted falls in inflation, house prices and mortgage rates throughout the year could see homeowners’ monthly costs fall significantly by the end of 2023. 

UK inflation slowed to 10.5% in December, which “should mean interest rates stabilise and even start to drop with mortgage rates following suit,” says Karen Noye, mortgage expert at Quilter

“This could result in mortgage rates dropping to 4% by the end of the year and potentially even lower in the future which will have a real impact on monthly mortgage costs, particularly for those on variable rate mortgages, and could see more people considering buying a new home as the prospect becomes more affordable.” 

“However, there is no guarantee that the changes in the housing market will materialise in the way that has been predicted,” Noye continues.

“Inflation is still incredibly high and people’s buying power has taken a real hit as a result, particularly with rising energy bills, but thankfully we look to now be moving past the peak.”

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 just 15 days, according to Moneyfacts.

What’s happening in the housing market? 

In the last four months of 2022, there were lots of dismal statistics and anecdotes about falling house prices and property deals falling through. Demand fell and sales slumped.

Looking ahead, 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.  

However, Rightmove reported house prices rose in January as buyers returned to the market. Its house price index showed asking prices were up 0.9% in January. 

It is arguably too early to say what is happening right now; any uptick in prices could be seasonal, and it’s still unclear regarding the direction of mortgage rates in the near future.

Kim Kinnaird, director at Halifax Mortgages, is expecting property prices to drop by around 8% over the course of the year, and says buyers and sellers will remain cautious.

She adds: “It’s important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remains significantly above pre-pandemic levels.”

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

When is the right time to buy a house remains the million-dollar question. Or perhaps the £262,068 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.    

Noye at 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.    

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

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, 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.  

First-time buyers may also benefit from other incentives such as lower mortgage rates. The interest rate on certain guarantor mortgages – aimed at first-time buyers – is below 4%.  

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 interest rates are going to rise further. 

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 as the year progresses.

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