Record Boom

We have had two boom years of record house price growth, but now the market is cooling, thanks largely to an increase in interest rates. So, with prices falling, many people are asking; is it a good time to buy a house?

2022 was an unusual year with house prices continuing to rise, then higher mortgage rates coming in and house prices starting to fall after a turbulent mini-budget and leadership contests from the government. In 2023 we find ourselves in the middle of a cost of living crisis, with soaring inflation, unprecedented energy costs and the country entering recession. All of this means that house prices have started to fall and are predicted to continue to fall for 2023.

Supply & Demand

A main driver of house price rises has been supply and demand. There haven’t been enough properties for the number of people wanting to move. This has been more acute in some areas than others, but on the whole it has been a significant driver. With some people deciding to put their plans on hold due to increasing mortgage costs, demand has slowed and prices are starting to fall.

Savills estate agents expects to see fewer transactions this year and prices reducing throughout 2023 and into 2024 before they begin to recover. They are predicting a 10% fall in prices with this being recovered by 2026. House prices increased by 12.6% in the year to October 2022 according to figures released by the ONS.

Estate agents and housing experts are predicting a house price drop between 5%-12% this year, with some warning that a worst case scenario could see prices falling between 15%-20%.

Mortgage Rates

The increase in mortgage rates and the squeeze of people’s finances due to increasing inflation are the biggest factor in this housing slow down. Mortgage rose to over 6% after the mini-budget but have since fallen back with the average 5-year fixed rate now at about 5.6%. About 85% of mortgages are on a fixed-rate deal and even homeowners who are going to have refinance in the near term will have had affordability testing at higher interest rates. This means that while it will be difficult, the vast majority will be able to cope with the rise.

A more ‘normal’ housing market?

As mentioned, one of the main drivers of the house price growth we’ve seen over the past two years has been the imbalance of supply and demand, with far more people looking to move than there were homes available for sale. And in a more settled housing market, buyers will have the time and space to make sure they find the right home for them. As a result of this, the time it takes to sell a home will likely increase to what we’d expect to see in a more ‘normal’ housing market, of around 60 days. 

After the incredible scramble of the past two years or so, it’s easy to forget that it is not usual to have multiple bidders lining up to try and buy your house, regularly offering over the asking price. Pre-pandemic, this simply wasn’t the norm and we will now see a period of re-adjustment as properties take longer to find a buyer.

It’s not all doom and gloom!

A survey carried out by Savills in December showed that buyer commitment had improved since its last survey in August: forecasts are that the most active buyer groups are needs-based buyers in early 2023, with equity-rich buyers returning as the year goes on. Of those surveyed who gave a reason for moving, 41% were downsizing; 36% were upsizing and 23% were in the market due to relationship breakdown, bereavement, or a job change. A total of 3% of all respondents said they were committed to moving within the next three months while 12% wanted to move over the next six months. 77% of Savills agents say there are more buyers aiming to take advantage of lower prices in 2023. It’s not the best news for first-time buyers, with higher mortgage rates restricting what they can afford. However, for those people who have a need to move, are already on the property ladder and have some equity, the market forecast doesn’t look too bad.

Is it a Good Time to Buy a House?

Coming back to the original question, is it a good time to buy a house? It all depends on your current situation. Mortgage rates have already fallen back from over 6% and there is continued, albeit lower, demand in the market. If you are driven by a need to buy, for example you need to down or up-size, then you may have more time to look around and make a more considered decision now that the frantic nature of the market has eased. The key thing to remember is that your decision to move must be based on affordability. The economy is forecast to stabilise with inflation peaking this year before falling back and interest rates also due to peak before falling and stabilising. A fall in interest rates does not mean that mortgage rates fall at the same time or at the same pace, that is also worth bearing in mind. While it is forecast the be a tough couple of years for family’s budgets, there will be recovery. If you are financially confident, then 2023 could be a good time to make the move.

Tom Greenacre, Managing Director of Purplebricks, said:

‘It’s understandable that people are nervous about the cost of selling their home and moving house given the cost of living crisis – but they don’t have to be. Buying a new home in a cheaper area or downsizing where children may have left home, for example, might leave you better off.’

Robert Gardner, Nationwide’s chief economist, said:

‘The fact that the housing market remained buoyant in the first three quarters of 2022, despite weak consumer confidence on the back of a stagnant economy, falling real incomes and a near tripling of mortgage rates, provides some reassurance that there will be a pickup in activity in the New Year.’

Don’t forget your survey!

If you do decide that it is a good time to buy a house, don’t forget to book your survey with a RICS registered surveyor. You will receive an independent report on the condition of the property that will allow you to make a more informed decision about the purchase, put you in a stronger position to negotiate the price or allow you to ask for works to e completed before you commit to buy. Buyers who proceed without a survey are more likely to have to spend thousands in unwanted repairs, not the best moving in present!

Avery & Co are RICS registered and have surveyors across the north west and North Wales with expert local knowledge. We are a friendly team of experts who will be happy to talk you through the findings of the report. You can find out about the full range of our services here.

if you would like to book a survey, please do get in touch, we’d be happy to help. You can fill out our contact form here or call us on 0330 088 5040