Ultra-low interest rates have helped to negate some of the effects of rising property prices since the pandemic, but now that loans are getting more expensive, house hunters are starting to question whether now is the right time to buy.
SoGlos spoke to Enzo Mora from Gloucester-based mortgage broker The Mortgage Brain to get his expert insight on the likelihood of a property price crash and discover how 'reserving' rates could help futureproof affordability.
About the expert – Enzo Mora, director of The Mortgage Brain
Enzo Mora is the founder and director of The Mortgage Brain. He and his team are dedicated to helping customers every step of the way with their search and application.
The brokers' unique Mortgage Search System is continually updated with the latest offers from the widest range of lenders, allowing advisers to rapidly locate the best deal to suit a client’s individual circumstances - wherever they are on the property ladder.
Is now a good time to buy a property?
As interest rates and property prices have been rising, some buyers may be thinking that they can’t afford to buy now. Before you make your decision, check your finances carefully and have a chat with a mortgage broker to discuss your options.
If you’ve already saved a deposit, know where you want to buy and are planning to stay in the property for a while, now could be as good a time as any.
If you’ve been given an actual mortgage offer for a property, as opposed to a mortgage in principle, this should be valid for six months. Lenders will still make sure you meet their lending criteria, so you shouldn’t be given a loan you can’t pay back if your circumstances haven’t changed.
As prices rise, you will increase the equity in your property over the long term - you can’t do this if you don’t own a property! Property is still one of the best ways to invest your money and the market is still showing resilience.
Is there going to be a property price crash this year or next?
Asking prices have been rising since the pandemic, an average of more than £55,000 by the beginning of the summer - compared to £6,000 two years before - and are still showing annual growth of 7.8 per cent in October 2022, according to Rightmove.
While employment remains high, interest rates are rising, so mortgages are getting more expensive. However, there is still a shortage of property, so while demand outstrips supply, prices will remain firm.
Some of the big estate agents have revised their forecasts to show price drops next year, but they are not expected to exceed 5 per cent and that won’t do much to dent affordability.
Will mortgage rates come down in the near future?
I would love to have a crystal ball to advise our customers and it’s a question we are being asked by many now. The Bank of England had said that its base rate - which is the benchmark for lenders to set mortgage interest rates - will continue to rise.
However, recent market volatility and then relative calm, following the clarification of government fiscal spending and a new chancellor to deliver it, means that no one can predict how high they will go, or if they will level out.
Lenders do want to stay competitive and lend money - and they can take a few days or weeks to adjust their products. The Mortgage Brain is always the first to know about new rates, so we encourage house hunters to sign up to our newsletter to get the latest deals in their inbox every week.
Should first-time buyers stay renting for the time being?
The recent slashing of stamp duty is especially helpful to first-time buyers, moving the threshold for paying the tax up to £425,000 for a property costing up to £625,000 - a saving of £8,750. This could help with moving costs, which still have to budgeted for.
Working out your financial situation by comparing rent and mortgage payments will show you what you can afford, but bear in mind that rents are also increasing due to a lack of property to let. Locking into a fixed rate mortgage will give you peace of mind for repayments that won’t increase, unlike your rent.
Buyers can find out how much they can borrow by checking out The Mortgage Brain's affordability calculator. There are other schemes such as Deposit Unlock, where you can access a 95 per cent mortgage with a 5 per cent deposit.
There's also the Mortgage Guarantee Scheme, which can be used on properties up to £600,000, will run until the end of 2022 and is not restricted to first-time buyers or new-build homes. Our advisers have all the details.
When is a good time to downsize?
Everyone’s circumstances are different; it’s not just retirees who downsize or down price for a more affordable lifestyle.
Some homeowners decide to move to a cheaper area where they can get more for their money, or can make savings by reducing the size of their mortgage if they have some equity and can therefore access an affordable interest rate - The Mortgage Brain can take you through all the options.
If house hunters need to move for schools next year, how can they make it more affordable?
If you already have a fixed mortgage that is finishing next year, you can check out the current rates and 'reserve' the best one without having to take it, then see whether rates have improved by then, or keep your reservation - which will go some way to futureproofing affordability.