Is this a bad time to buy a house ?

[Salinger26]

We are getting ready to buy our first home but not feel comfortable due to interest rate and property crash rumors. Any suggestion on this ?
I am spending my days in Rightmove and feeling overwhelmed.

Are you buying a house to live in for a good few years? In the immediate future, house prices might drop. It's likely they'll slowly increase again in the future.

Can you afford the interest rate being offered to you currently? And is there a bit of stretch for future increases?

Honestly no one can predict, but if it was affordable and somewhere I planned to be for a few years I would go ahead 😊

I’d go for it, if you can afford current interest rates and it’s a house you can stay in a good few years that way you’ll ride out a house price dip. It’s riskier but you wait until the prices actually dip and get a bargain. But interest rates might rise

I agree with the other posters, if you can afford the mortgage at its current interest rate (and fix!) and you're planning to stay for a few years, it's way better to buy now than to let your deposit lose 10% of it's value per year because of inflation. House prices will drop (crash maybe) but they'll recover. There's still a housing shortage in the long run. Savings are worth less and less every day atm.

I’d give it 12 months if you already have acceptable accommodation. During the 90’s recession, house prices dropped by a third or more.
Now is the absolute peak of the market. It’s only going down from here. The difference could be between affording a 2 bed apartment vs. a 2 or 3 bed house.
It’s a global recession, money is tight, drops could take 10 years to recover.
Wait a year, it will fly past.

The price of houses might drop a bit but interest rates are likely to keep going up, so just be aware of that.

You feel overwhelmed because it is just unpredictable... I hate remortgaging at the best of times, trying to feel confident whether its worth getting a 2yr or 5yr fixed, etc etc.

I think as long as you invest in something you can afford for the foreseeable 5 years you won't lose sleep at night.

If property were to crash by a third you would need an enormous deposit, as lenders would pull low loan to value products. One of the reasons a crash doesn't help FTB as much as you'd think.

Sorry, high loan to value. I reckon you'd need min 25%. If you have that, fine!

To confirm, this is not meant as a prediction, but just as an illustration that house prices have fallen in the past and remained low for an extended period.
I bought a flat in the West London outer suburbs in 1988 for £65k, interest rates increased, and in 1995 I sold it for £38,500 - a c.40% loss over 7 years. It finally recovered its 1988 value in about 2001.

I was able to pay off the negative equity and move. Large numbers of people, including some friends had their homes repossessed.

We bought our house at the peak of the market in 2007. It probably lost value in the first year. Still it's now worth double what we paid for it and we paid off the mortgage after 7 years. We paid relatively high interest rate of c4% but it was affordable to us. Ive never benefitted from low rates which is a shame.

Just go for it if you can afford it. Fix for a long time.

Oh meant to say if you are staying put for years it doesn't matter.

Look at what you could afford if interest rates are 8% - if you could still afford a house if prices only drop by 10-15% then wait, you might be lucky and they might drop loads.

If 8% would be unaffordable, buy now and fix for as long as you can. You may need to stay in the house for 5-10 years to ride out prices drops, but at least you’ll be paying off the mortgage not rent.

it depends very much on your circumstances.

reasons to buy now:
-if you have kids, especially if school-aged, and want to be sure no landlord can sell out from under you
-if you are unhappy with your current place or would struggle to find suitable rental accommodation (for instance if you have pets)
-if you plan to stay there for at least 5 years
-if you have a sizeable deposit and would not mind buying and then seeing a temporary dip in the resale value
-if you are a higher rate or additional rate taxpayer
-if you could afford to make mortgage payments even if interest rates go up a further 2-3pct

reasons NOT to buy now
-if you have no kids or pets and could easily move to a new rental place if requires
-if your idea was to buy a place to live in for a couple of years before upgrading
-if you have less than 20-25pct deposit and would be at risk of ending up in negative equity if we have a housing price decline of 20-30pct
-if you would struggle to afford mortgage payments in the event of a further 2-3pct interest rate increase

Going against the grain - I would say now is a good time, as interest rates are only going to go up. Any saving you make may well end up being wiped out by higher rates. Right now, lots of sellers are reducing the asking price on Rightmove - people are panicking because November and December are dead anyway for sales, and a crash is now widely predicted. So if you're willing to take on a less attractive property (no curb appeal, quirky layout, not great catchment area etc) you could get a great bargain. I would look at houses that have already been on RM for a while, even those that are slightly out of your budget.

Worth mentioning that how quickly property prices recover after a crash really depends on area (and the kind of property), if that's a factor. Flats where I am (a low income area that nobody has much reason to move to) are still selling for below the 2007 peak. Houses are a bit safer since they're more desirable, as is anywhere in the south east or a major city.

We are first time buyers and going to back out. We only have a 10% deposit and so could only get a max 5 year mortgage fix. If we are in negative equity and end up on the svr after 5 years our mortgage would probably be over 2k. Wanting to stay long term doesn't matter if you cant remortgage. We have also had it announced at work that redundancies will be made. I think I'm safe but its strange times. Have decided renting is safer in these unsettled times.

There is still a housing shortage so unlikely to have a major crash but prices will stop increasing and I'm seeing reductions (from very high prices).

There are still plenty of people with high disposable income, especially in London & SE, all those bankers in London with uncapped bonuses!

The other thing to put into your equation is what you would spend on rent in the same time and also the worry of being in rented and potentially having notice served. Where I live a 2 bed flat is currently £2000 a month but the mortgage on it would be about £1000 plus any service charges. So look at interest paid/ service charge vs the rental you would pay as well.

If buying a flat you need to bear in mind that service charges are likely to increase over the next few years. Landlords energy supplies for communal areas are classed as commercial so aren't subject to the price cap.

My daughter has saved for a house deposit and my advice to her has been to stay in rented for the time being. I'm old enough to have lived through two crashes and where we live the recovery has been slow each time. The first time we were stuck in a house we hated in negative equity until we managed to save enough to buy ourselves out of it. It was miserable.

It’ll you do decide to take the plunge, don’t offer more than 90% anyway, probably 85%.
That much of a drop is now baked in.

My son is on a similar position. He has been saving his deposit since before Covid but then got furloughed on 80 percent of salary for 6 months so could not save as much. Now he will have enough by end of March and can't buy earlier as money in LISA and getting government top up. Now he is worried by end of March mortgage rates will be 6 or even 7 percent as they are usually about 1 1/2 above bank base rates. They are now likely to go up a whole percentage point or more in November. He is thinking he might sit tight and save more and hope for a drop of 10 percent in Spring.

What's the significance of being a higher rate taxpayer?

I guess one point to consider is that you can't lock in a rental price for five years or more.

People saying that you can lock in at a lower rate don't seem to realise that the mortgage companies are pricing in the rate rises already. You're not going to be able to buy with a lower rate now than next year unless your mortgage has already been processed. So tbh, you may as well wait for the market to fall, which all the evidence suggests it will, and then buy next year.

When you're looking at mortgage rates on offer, please take into account that they're set by people who are taking a punt on what rates are likely to do over the term of the fix - and those people are relatively well informed (it's literally their job). Absolutely no mortgage company is offering a fix at a lower rate right now than they think they will be able to make money on over the term of that mortgage.

We're in the same position. Made a couple of offers but not had anything accepted, been looking for about 3 months, but the market is still very hectic here. Really not sure what to do, think we will struggle to find something we can afford now as realsrica need to be looking at something 20k less due to interest rates. So depressing when we finally managed to save enough for a deposit we are now in this situation, early 40s so time doesn't really feel on our side either.

@MarianneVos If you view your deposit as an investment, then the house deposit earns you a tax-free return: you do not pay tax for the rent avoided by owning the house and not having to "rent" money from the bank for the portion of the purchase price that was funded with your deposit. Whereas if you instead put that money into low-risk investments (bank deposits or short-dated gilts), you will collect interest but pay tax on the interest.

The significance of being a higher rate tax payer is that it effects the portion of the interest that you get to keep after paying taxes. Example: If you have a £100k deposit available but choose to rent instead and then invest that money at 4% (=current rate on a very safe investment, a government gilt), you will earn £4k pre-tax, but as a higher rate taxpayer you will only keep 60% of that, so £2.4k or a 2.4% post-tax return on your money. Whereas as a basic rate taxpayer, you will keep 80% of that, so £3.2k or 3.2% post-tax. And if it[s tax-free (because you have socked the money away in an ISA) then you can get 4.0% post-tax.

Another important variable to look at is the gross rental yields in your area, versus the mortgage rate. If you can rent a suitable home for a low percentage of its value (looking at annual rent divided by house price, so a £300k house renting out for £1k / month would have a 4% gross rental yield) then that would tend to support renting, especially where the mortgage rate substantially exceeds the rental yield. If rents are 6-8% or more of purchase price, that supports buying.

Hope this helps.