Would you pull out of exchanging due to covid-19?

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I'm mid-20s, buying alone, first-time buyer, have saved up for years to be able to, looking at purchasing a victorian 3-bed terrace (not in a large city but has train station 5 mins walk away, a primary school 2 mins walk away, shops 10 mins walk away), got 10k off asking price and sorted out everything including surveyors etc. and had opted for a 2 year fixed deal (35 year mortgage) with ~80% LTV.

Now, I'm considering moving to a 5 year deal in case of negative equity risk when remortgaging due to covid still affecting house prices 2 years on (meaning my mortgage repayments per month could go up by a lot). I'm hearing of a LOT of people thinking of or actually pulling out due to the uncertainty of the impact of coronavirus.

I'm thinking that if job/income etc stays stable, is there any valid reason for pulling out related to covid-19?

Plus, otherwise, I'd be continuing to rent which is money down the drain and this way, I could rent out any spare rooms if I owned the place. Also, if house prices really go down, less people would put their house up for sale so less to pick from, and a lot of banks are pulling their mortgage products off the shelf as it were so it seems like waiting would mean potentially waiting a long time. Besides, it would be a global issue so every homeowner (including the millions who bought just before covid-19) will be in the same boat.

I don't know if I'm just putting a positive spin on it to make me feel better as I am in two minds about this. Any advice, comments, etc. with consideration to my situation would be helpful. I know no one can tell me with any certainty what will or will not happen due to covid.

Thank you.

Mortgage lenders have stopped lending more than £350,000 and anything more than 60 LTV!

Be careful!

I would def exchange

I would wait.

If she waits, she may not get a mortgage

Banks are not going to be lending for a long time and the criteria has become stricter

Bdms are emailing everyone to say no to new applications on certain products and levels.

Very very very risky to pull out!!!

People love giving advice on something they know nothing about

Exchange. It will get so messed up - you might not get another chance for years.

@Luci459 sure they do, you included?

What if the price drops dramatically? OP is mid 20s, too young to be stuck in negative equity and unable to move.

If it was her long term house, with DC etc I might say keep progressing.

If I were you and going ahead I would fix for as long as I could. Interest rates have never been as low so I can't imagine deals getting better.

I can’t see a drastic change occurring although these are unpredictable times. I think prices fell by around 15% in 2008 and that was for a sustained period of time. I think the COVID-19 impact, if any, will be short and sharp. I hope the market would recover quicker than in 2008 and indeed there are Homes England/LISA schemes in place to jumpstart the market again which weren’t really in place in 08.

With 80% LTV I wouldn’t be too worried but if you have any doubts you shouldn’t proceed.

Best of luck!

Thanks for the replies so far everyone.

I honestly wouldn't. If you're willing to sit tight, you'll find a similar place for 10 - 15% cheaper in a year's time.

Expectations of a short sharp contraction are unfounded. This is a global crisis and despite everything we're doing in the UK to protect jobs and companies, the wider macroeconomic depression is going to result in a lot of companies going bust in the next 6 - 8 weeks and a lot of people being made redundant (in the US, for example, 10 million people have claimed for unemployment benefits in the last 2 weeks). Companies will not re-hire 100% of the staff they have laid off overnight. Easy credit won't re-appear in the economy overnight - banks will be very careful with lending as they know companies and people will now have reduced affordability (due to additional loans etc.) + potential taxes etc. by government to pay off debts raised in the crisis.

Most economists don't even think house prices will ever recover back to these levels are pre-covid19 was a peak fuelled by an unprecedented bull market, low interest rates, high LTV loans and "Help to Buy"

Thanks for your reply @newbie111 but what about the fact that at the moment they've made mortgage products of higher than 60-80% LTV (bank dependant) unavailable. What if this continues to be the case post-covid-19?

Will that not mean that despite house prices possibly becoming cheaper, I won't be able to get as much of a mortgage?

I worked in a bank when the last recession hit. Banks will always ensure they will get there money. As shown currently they are reducing the Ltv level that will lend to as they are very worried. Its unlikely the government can or will bail them out this time if they need help so are trying to protect themselves. That said after this is all over you will see the banks start to increase levels again to compete with each other and make more money again. In short you will struggle to find a mortgage after this for a while but it will level out again eventually. How much of a drop? How long. No idea but it is a massive gamble. Rule of thumb if you can afford a 8-10% interest rate (if rates rise) then your safe to buy now. Weigh up pros and cons of being "stuck" in the house for 10 years. Being able to rent out rooms is a plus though.

When the availability of credit (i.e., mortgage) drops, demand for properties at the existing price point drops (because it's no longer affordable for people who would have normally bought the property) this usually continues to a point where there's equilibrium i.e., the original buyer will be able to afford this property again.

In short, if the banks don't resume mortgages with an LTV > 60% after the crisis, then the prices will continue to fall till the point where the same buyer will be able to afford to buy the same property by paying the higher deposit requirement.

Rents aren't going to drop though in the next few years without rent controls (ha!). Even when house prices drop, rental demand and prices stay high.

You need to weigh up the risk of staying stuck in rented and how many thousands you will waste on that vs any potential drop in house price and whether you could absorb that in the long run.

www.gov.uk/government/publications/coronavirus-outbreak-faqs-what-you-can-and-cant-do/coronavirus-outbreak-faqs-what-you-can-and-cant-do#can-i-move-house

If you haven't already exchanged contracts you should either delay doing so, or include terms in the contract that you don't actually move until after covid-19 restrictions have ended.

To add to what's been mentioned, most mortgage lenders are restricting lending because they don't have the staff to handle applications and they are unable to do proper surveys, as much as because of concerns over affordability. AIUI lenders are prioritising existing borrowers who are remortgaging to reduce payments or release equity.

Unfortunately the reality is a lot of people like yourself, who have worked so hard to build up savings for a deposit, now face having to spend that to pay bills and living expenses.

We had a similar dilemma when we bought our house just after the Brexit vote. We continued and I'm glad we did, we love the house and not much has come on the market since then - as soon as the market slows down, people stop putting their houses up for sale. We're locked in to a 5yr deal on our mortgage at a relatively low interest rates. Rates have gone down a little since then, but not considerably.

I don't know where the OP lives but, generally, renting isn't a waste. Especially if it's for just another year to ride out the drop in the market before saving 10% on a property!

We're too hasty to compare rent directly to the simply the mortgage amount while not pricing in other costs of owning a house (insurance, maintenance, re-mortgaging fees etc.). Also, when you rent, while you definitely are paying off someone else's mortgage, that mortgage was, usually, taken when the house was at a much lower valuation so in a lot of instances, it is cheaper to rent. And the key reason to rent obviously is the flexibility so people like the OP can buy the right house at the right price!

There will be alot of people who loose their jobs permenntly after all of this, you can not just click a switch after all this is over and every picks off from where they were before, there will be a recession and possible depression after, the economy will have been shit down for at least 2 months and there will be consequences for that, house prices coming down will be a definite by how much nobody knows, banks not lending unless you have a 40% deposit would be worse case, they are saying it is because of lack of staff, but underlying they know there is an upcoming down turn and are playing safe. I would definitely be holding off buying

Thanks a lot for your responses so far.

It’s a difficult dilemma that you face OP, speaking as someone who was stuck in negative equity for many years in the 90’s you are right to be cautious.

I would say if the house you are buying will be a long term move property prices always rise. But you will need to expect the value to drop. By how much can be anyone’s guess atm.

I know for us it took 10years for us to sell our flat for what we initially paid for it in the very early 90’s. Sounds scary I know but also our next purchase was much much cheaper, so we didn’t require too much mortgage, so again swings & roundabouts.

Banks always look after themselves, they are not usually very keen to lend to sole purchasers on the whole, they much prefer couples, for obvious lending reasons. So you may find if you pull out of the sale, issues obtaining a mortgage or need for larger deposit.

We are looking to downsize now, and were about to put our property on the market. We are now just resigned to the fact we won’t be moving for a year or so.

Good luck with whatever you decide OP, do you really love the house you are buying?

You really need to research the house market carefully. Do you have to move or can you wait another year or not? House prices vary all over Britain. If you must move now, use some property sites to research house prices and read the descriptions carefully too. Work out what options you have. Go from there.

As others have said, you may well not get a mortgage for another couple of years as banks tighten their criteria.

Prices will go down for a while after this, but as we found at the last recession, that's because the banks stop lending to all but the most financially stable.

It depends, if you think that you can either happily wait for a while before buying, or you that you'll be in an extremely good financial position to buy when you do plan to buy.

Prices will go back up at the same time as people are on average more able to pay them. If you buy now you may well be in negative equity for a year or two (or possibly more, depending on where in the country you are), but during that time you'll be paying off the debt and you'll own a fair bit of your house already when prices start going back up (which they will).

If you're planning to stay in that house for at least 3/4 years I'd buy still. If not I'd wait.

80% LTV with 35 years mortgage sounds like you are stretching yourself. How secure is your job? Keep in mind that we haven’t see full impact of covid-19 yet.

If I were you I would pull out now and look for sth with smaller price tag later. Something you can afford with higher LTV which means that you can still get a mortgage. Also make sure you can afford repayment of mortgage in unfavourable situations (eg if interest rate is 5%)

Newest projection is that UK GDP will decline by -14% in Q2. An article a few days ago said 3% price decline if GDP declines by a similar percentage.

At least wait for a couple of months and see where things land. It is not like the vendor can suddenly find another buyer meanwhile.

Thanks for all the insightful responses so far