If you want to build wealth steadily in a sector with unprecedented demand, buying a house could be a viable route.
With the right mortgage agreement, a house can still be a great investment.
It’s no secret that interest rates aren’t as low as they were a few years back but demand for property continues to increase.
What affects whether a property is a good investment?
Property purchase fees
Regional factors like population and location
Demand for housing stock
Conduct thorough research, consult with experts, and consider your financial situation and investment goals before buying a property.
Ask a mortgage broker to look at your situation and give you realistic options for finance, if appropriate. They’ll tell you how much you could be approved for and you’ll know what your budget is to plan your next steps.
House prices increased by 5.5% year on year
Average UK house prices increased by 5.5% in the 12 months to February 2023.
The average UK house price was £288,000 in February 2023, which is £16,000 higher than 12 months ago.
The West Midlands saw the highest annual percentage change of all English regions in the 12 months to February 2023 (8.6%), while London saw the lowest (2.9%).
London's average house prices remain the most expensive of any region in the UK, with an average price of £532,000 in February 2023.
But house price growth has cooled
According to the UK House Price Index (HPI) which measures the price changes of residential housing, property prices peaked in November 2022 and have gradually come down.
The report shows that house prices dropped by 1% in February 2023 and while seasonality plays a big part in the highs and lows of property demand and cost, some experts predict this trend will continue.
That said, the most recent HPI data follows property prices between February 2022 and February 2023.
More recent data from the Nationwide House Price Index indicates price increases. Their data shows consecutive falls from November to March and then a 0.5% increase in April 2023.
Demand for housing affected
Demand for houses soared in 2021 during the first, second and third lockdowns and demand hasn’t peaked anywhere near those levels since.
Insight Director at Zoopla, Richard Donnelly, says that he thinks the new “working from home” culture has negatively affected demand and subsequently, property prices.
With less of an urgency to live near work, people have more freedom to stay at home in their spare room or garden.
Will the housing market crash?
It’s doubtful but not impossible. Rents continue to rise, driving demand for buy-to-let properties and contributing to an already crammed housing market.
There is still a great urgency to buy property from investors and hopeful homeowners and while that urgency can dwindle as the economy shifts, it won’t completely fade. People always need homes.
Accessibility to credit
Owning a property is possible. There have been stagnant wages and interest rate rises however, accessibility of mortgage finance is good.
The credit market is open with a range of affordable mortgage products. For example, Skipton Building Society has a 100% mortgage that requires no deposit. Nationwide, Natwest, HSBC and many others have 95% mortgage products.
That accessibility to credit makes owning a house a feasible goal and therefore interest in owning property will remain steady whether you’re a contractor, landlord, key worker or someone with bad credit.
Should I wait to buy a house?
Until when is the real question? The market isn’t predictable, so if you’re in a position to buy but wait, you run the risk of missing out on a mortgage set at today’s rates. Rates could increase and you could also miss out on today’s property prices. If that happens, you’ll wish you’d bought it sooner rather than later.
It also depends on the area you want to buy in. Some areas experience high demand, while others may experience a slowdown or stabilisation in house prices after rapid growth.
If you’re hoping to buy a property and benefit from price appreciation, be sure to research the area, the current listing prices for properties you’re interested in and historical price changes.
Choosing a mortgage is the place to begin
Before you can purchase a property, you’ll likely need a mortgage. The product and terms that are suitable for you will depend on how you’ll use the property.
Will it be your home and require a residential mortgage? Is a buy-to-let mortgage needed instead?
The amount of money you pay for the property throughout your mortgage agreement affects your profit, so even if you’re planning on flipping a house, purchasing property to live in or letting to multiple occupants, be aware of the terms, fees and interest rates that are attached to your contract.
Look out for these in your mortgage contract
There can be different names for fees which have similar implications for your pocket.
early repayment charges
missed payment fee
higher lending charge
That’s another way a mortgage broker can help you - they’ll have a meticulous eye for finding fees in your contract and can highlight any that you may be charged in the future so you’re aware before you sign. Comparing the cost of charges and fees is a great way to save yourself money on your mortgage.
Risks associated with investing in property
Remember that investing in property carries risks - the market can be unpredictable.
If you take out a mortgage with a fixed interest rate, you won’t be affected by interest rate changes until your fixed-rate period ends.
If you’re on a variable-rate mortgage, the amount you pay for your mortgage per month can increase or decrease at any time. Those sudden changes can be expensive.
Think about how much equity you’ll own in your property
If property prices drastically fall, you could, for example, drop from having 5% equity to 0% and that can make it tricky to find a good remortgage deal.
A larger deposit means you’ll have higher equity. It would also result in a smaller loan because you’d require a smaller percentage of the property's value as a mortgage.
Reducing your loan-to-value ratio can also save you money in interest, although that also depends on factors like your credit history, source of income and age.
That’s not to say that low-deposit mortgages are risky, but having higher equity can be advantageous if you want to refinance or sell.
Ask an expert
With all the above in mind, it's challenging to make a blanket statement about the entire housing market and whether you should buy now or wait for 2024.
Exploring your options can only give you more information to make an informed decision, so if you’re interested in buying a property and want to know if you’d get approved for a mortgage ask us.
We have qualified mortgage brokers that work to find the best deals so that you don’t pay more than you should.