To buy, or not to buy, that is the question…
By Steve Cook – Partner Clarke Gammon
To coin the famous phrase from the great bard’s Hamlet, to buy, or not to buy, is the essence of a question I am asked on an almost daily basis. Although in context, the question is mostly related to whether now is a good time to buy a new home or is there an argument to rent, with the current uncertainty around both the property market and the economy.
It would be fair to say that house prices in the UK have seen significant increases in recent years, the local property market in and around our offices in Guildford, Haslemere and Liphook, has seen annual increases of almost double digits over the past two years or so.
Having been around the block a few times, I know that history does have a habit of repeating itself. As with all of the previous super-inflated property markets over the years, they are always going to slow at some point, as people’s ability to service the mortgages required to buy property at increasingly higher prices becomes unaffordable.
At this point in the cycle this time around, the external influences of the Ukrainian conflict pushing up gas prices, which has inevitably impacted inflation and the equally inevitable reaction from the Bank of England to increase interest rates in their vain attempt to control higher inflation… Pushing the cost of borrowing up.
So the question remains, is now the time to buy or is it better to sit tight and see what happens? There are some important influences and one of the most relevant, to would-be buyers, is what’s happening to house prices.
House Prices
At a local level, it’s not always easy to see the subtle market trends, my experience of house prices at the moment is that little has changed, as whilst it’s certainly not the frenzied market we’ve seen earlier in the year, there remains a good amount of buyer demand which has, by and large, kept asking prices steady. The limited supply of new properties coming to the market has helped maintain prices, there are still too few properties on the market compared to the number of buyers.
Although, we are seeing owners being much more realistic and offers are being very carefully considered.
At a national level, where a far greater cross-section of market data is available, market commentators report that prices have slowed. The property portal Rightmove confirms that ‘Average house prices reached £371,158 in October, an increase of 0.9% from September. That’s up 7.8% from October 2021’.
This represents a drop of 1.1% this month, which despite the weight of financial uncertainty is in line with the average 1.1% drop recorded in November during the pre-pandemic years of 2015-2019.
What prices will do next year is also an influencer, but this is a much harder question. I am not one for making predictions, although there are a good many that give it a try… Rightmove for example, initially predicted house price growth to slow to 5% for the whole of 2022. It then revised this by increasing its growth prediction to 7%. This projection comes because housing stock is at a record low and is struggling to meet buyer demand.
To buy, or not to buy?
Of the buyers I talk to on a daily basis, there is little consensus, some, particularly first-time buyers, hope house prices will fall to make house purchases more affordable. But there is no guarantee that will happen.
There are homeowners that are holding off selling due to a lack of available property to buy, which only adds to the problem. The limited supply of new homes coming to the market means buyers can end up competing with other buyers to secure a property.
The cost of borrowing has also become more expensive and it could become more so if the Bank of England raises interest rates again. Although we have been lulled into a false sense of security thinking that borrowing would remain ultra-low. In 1979 interest rates were 17%, in 1989 they were almost 15% and in 2008 they were 5%, it was only after the 2008/09 financial crash that we have seen these ultra-low interest rates.
There is of course uncertainty, but the property market has over time been, and remains, resilient. The kind of house price increases we’ve seen in recent times was unsustainable and a correction was inevitable. Nevertheless, the desire we Brits have for owning our own little castle is not going to stop anytime soon.
So the answer to the question is, if the time is right and you can afford it, then it’s probably better to bite the bullet now. Certainly, if this is a long-term plan, and you intend to live in the property for several years.
There is little point in waiting for house prices to drop, which may not happen, and even if house prices take a hit due to rising mortgage rates, it will mean that borrowing to buy property is more expensive. This means waiting for lower house prices might come at the expense of affordable mortgages.
It is also important to remember that you are buying a home, and are likely to live there happily for many years, so think about it as a long-term investment. Historically, property values have increased over time, so whilst you may not make a profit in the short term, you will almost certainly make a profit investing in property over the longer term.
The advantage of buying in the current market
Finding and trying to buy your dream home in a buoyant market can be a bit of a lottery, with strong buyer demand there is so much interest in new listings, it can be very difficult to secure that perfect home with such a lot of competition.
When buyers lose out, which often happens and sometimes on more than one occasion, they will on reflection, regret missing out on that forever dream home, particularly when nothing else even comes close thereafter.
In the current, slightly more relaxed market conditions, buyers are afforded a little more time to search for their perfect home, without the fear of being outbid. Sometimes there may even be time to sell their own property in order to secure their dream!
Would it be cheaper to rent in the short term?
In previous times, the buying cycle has often started with people renting first in order to save for a deposit. In more recent times, rising rental prices have made this a much more costly option.
Currently, the average monthly rent in the UK was £1,171, according to the Homelet Rental Index. That’s an increase of 10.6% over a year. The latest data from the ONS, shows that private rental prices have increased at their greatest annual rate for more than five years, as demand continues to heavily outweigh supply.
Mortgages however, are still relatively cheap and repayments can often be lower than the cost of monthly rent.
The issue for many many tenants is that they struggle to save enough for a deposit to buy a property, because their rents are so high, leaving them stuck in rental properties until they can set enough money aside.
If the time is right, if you can afford it, and this is a long-term purchase, now is still a time to seriously consider buying a home.
Considering a move?
If you are thinking of buying or selling, or need some help or advice on property-related matters, please give me a call at our Liphook office, I’m always happy to help.
Steve Cook
Partner Clarke Gammon
See what our customers say about us – See our customer reviews.