By Most people seeking to buy property usually struggle with two points of view. On the one hand, some buyers expect house prices to fall, enabling you to save some money if you bind your time. On the other hand, other buyers expect house prices to continue rising, as they have been doing since the 50s, creating a sense of urgency. Overall, buying a house is a big decision that should be based on current and future economic factors.
So, considering the current state of the UK’s and the world’s economy, is now a good time to buy a house? Here’s what you need to know to make an informed decision.
The Current State of the UK Housing Market: Falling House Prices
House prices have been continually rising since the 1980s. They averaged about £23,700 in the early 80s and reached £59,500 by the late 80s. Moreover, they rose to about £74,600, £162,100, and £212,500 by the late 1990s, 2000s, and 2010s, respectively. Notably, in keeping with the trend, the housing market has seen a 10% year-on-year increase over the past decade. Based on this trajectory, many potential home buyers would expect house prices to keep rising in the long future.
However, the housing market lost momentum at the start of 2023. To this end, house prices are falling and may keep dropping for the foreseeable future.
Property website Zoopla reports that house prices have dropped by about 1.2% during 2023, currently averaging £264,000. Moreover, demand for houses is low, and the number of homes available for sale is at a six-year high. As a result, houses are selling below the asking price average by about £18,000, the highest discount rate in five years. Interestingly, Zoopla and other experts predict that house prices will continue falling in 2024 and the foreseeable future.
The declining housing market is not surprising, considering the current state of the UK economy. Notably, the following two factors are driving the downward trend in house prices:
· High Mortgage Rates
UK’s bank rate was at just 0.1% in December 2021, which made mortgages affordable. However, it currently stands at 5.25% following 14 consecutive hikes by the Bank of England, reaching the highest level since the global financial crisis of 2008 and making mortgages increasingly expensive.
Higher bank rates mean higher mortgage rates, making mortgages unaffordable to most home buyers. To this end, the current rate for a two-year fixed-rate mortgage with a 10% deposit is about 6%, which is intimidating for most people.
· High Cost of Living
The cost of living rose sharply between 2021 and 2022. Notably, the inflation rate reached 11.1% in 2022, marking a 41-year high and sending consumer prices rocketing. Among other things, food and energy prices rose the highest. To this end, people have less money to spend on things like houses, which are essentially unaffordable to most people. This has directly contributed to the falling demand for housing, hence the falling house prices.
Is Now a Good Time to Buy a House?
So, is now a good time to buy a house? Overall, the answer depends on your financial resources and housing preferences. Here is an overview of compelling reasons to buy now or wait:
Why Consider Buying?
Now may not be the right time to buy a home for two crucial reasons. First, mortgage rates have only declined slightly and are still considerably higher than one year ago. Moreover, they are expected to keep falling in the near future as the Bank of England revises the base interest rate downwards. To this end, mortgages may be more affordable in the future, and getting one now based on a small deposit may leave you with a negative equity.
Second, house prices are projected to keep falling over the foreseeable future in line with the falling mortgage rates. To this end, you could save thousands of pounds if you bind your time and wait a bit longer.
Why Consider Waiting?
However, there are also a few compelling arguments against waiting. Most notably, the economy and housing market are unpredictable, and you may wait a long time before house prices and mortgage rates make significant declines. Moreover, prices may remain the same or even rise instead of falling. It is also worth noting that average rent prices are rising, so buying a home may make more financial sense.
Final Thoughts
Overall, the good news is that housing prices and mortgage rates are in a downward trend, albeit they are currently still high. Moreover, experts predict a continuation of the trend, so buyers can expect lower prices and mortgage rates over time.
