Is now a good time to invest in property?
As of July 2022, the average house price in the UK was £292,118. The UK House Price Index reported that property prices had risen by 2.0% compared to the previous month, and risen by 15.5% compared to the previous year.
House sales reached a whopping 104,470 in July 2022, increasing 3% compared to the previous month, according to HMRC. The figure is also 37% higher than the same time last year.
While those stats are promising for anyone considering buying a house as a short or long term investment, you can’t time the housing market. There’s no concrete way of knowing whether buying a house will result in a profit, whether that be in years to come or quicker if you’re considering renovating and flipping it.
Factors like demand in the area, the type of property, materials used during the construction of the build and outside economical factors like inflation, interest rates and the rate of unemployment can all affect whether a house makes a profit when it comes to selling or remortgaging.
The cost of living crisis could have a knock on effect
Afterall, the prospect of increasing pressure on households’ finances could cause growth to fall. While there may be demand for property now, that may not be the case later down the line as the cost of living increases and buyers become more tentative. With that said, in the UK, demand for housing outweighs supply.
There’s a lot to consider when making an investment purchase, so always seek advice from a property professional and a mortgage broker with experience in the area you want to buy in. They can recommend the most affordable mortgage lenders to keep your costs down by comparing interest rates, arrangement fees and incentives.
They’ll also look closely at the cost of exit fees. If you’re planning on making improvements to a property and selling it on for a profit, you’ll want to know exactly how much it could cost you to settle your mortgage balance and leave the contract. Some lenders have low exit fees whereas others charge significantly more and that affects the overall profit you’ll be left with.
Is now a good time to buy a buy-to-let house?
For most people, housing is not an optional cost unless they have someone willing to give them a place to live free of charge, their choice is renting or buying a home, and as housing prices climb, rental rates generally move in the same direction.
In some areas of the UK, rental yield is higher than others which means landlords can earn more. Generating income from a rental property isn’t a given though and you’ll need to be able to market your property to a relevant tenant.
For example, if you’re thinking of buying in a city, a smaller house or flat with space for an office could be ideal for a working professional rather than a family, so you might consider advertising the property online using tools like Instagram or Tick Tock, with short yet descriptive video tours that quickly show the audience the benefits and costs of the space.
In contrast, If you’re marketing a larger house with a garden, you might consider using Facebook, Rightmove or Zoopla to attract families.
Rental prices are on the rise
There’s a shortage of housing in the UK which has pushed demand for short and long-term lets, presenting an opportunity for landlords to potentially make a profit.
However, it’s important to keep in mind that buy-to-let (BTL) purchases typically have higher upfront costs versus residential purchases. For example, their fees and fixed interest rates tend to be higher as most lenders perceive the risk of lending on this basis as higher, given that the mortgage repayments will be made from rental income as opposed to income from a job.
Deposit requirements are typically higher too. A BTL mortgage usually has a minimum deposit of 25% of the property’s value (although it can vary, depending on the lender, between 20-40%).
Waiting for rates to drop can be a dangerous game
Interest rates have changed dramatically over the last 3 years. In August 2022, the Bank of England’s Monetary Policy Committee (MPC) set monetary policy to meet the 2% inflation target. At its meeting ending on 3 August 2022, the MPC voted by a majority of 8-1 to increase the Base Rate by 0.5 percentage points, to 1.75%.
The base rate is the rate that UK banks and mortgage lenders are charged to borrow money from the central bank. So, if that goes up, so does the cost of borrowing for lenders and subsequently, so does the cost of borrowing for people that get a mortgage, credit card or personal loan.
When interest rates are high and predicted to increase further, demand for borrowing can slow down because generally speaking, people don’t want to pay more for their mortgage.
However, when mortgage rates fall, more people are likely to want to buy a house because borrowing tends to be cheaper. The extra demand can result in bidding wars and a lack of available stock and that can push property prices even higher.
Should I buy a house or wait until I have a bigger deposit?
There’s no right or wrong answer to this as your own situation will heavily influence whether buying now or waiting is best. You might have saved a chunky deposit and be in a position to buy sooner rather than later, and having a larger deposit could help you qualify with deals that have a lower interest rate.
Having a smaller deposit doesn’t mean that property ownership is off the table though as there are lenders in the UK that accept deposits from 5%, if you can prove that you have good affordability for the mortgage amount.
If you’re current living situation is less than desirable i.e. you’re house sharing, living with in-laws or renting somewhere you’d rather not, then buying a house with a smaller deposit could be an option to consider, despite the fact that it’ll likely mean repaying more in interest and taking longer to clear your mortgage.
Ask a broker to calculate your mortgage repayments
If you speak to a mortgage broker, they can calculate how much your mortgage repayments would be for various lenders and hypothetical situations. If you’re hoping to get a repayment mortgage as opposed to an interest only mortgage, they can show you how much of the capital balance you’d repay as well as how much the interest will cost.
That can be a good way to get a better understanding of whether now is the right time for you to buy a house because you might come to the conclusion that you:
A) Can afford the repayments and want to go ahead
B) Want to wait a little longer to save a bigger deposit
Buy now or wait - it’s your decision
Generally speaking, property tends to rise in value over time so you’re likely to make a profit on any long-term investment. If you’re buying a house to live in for a good amount of time, that can be good news but always keep in mind that if you’re buying a house as an investment, there is no guarantee that you’ll make a profit and therefore the risk of loss should be carefully considered.
Find out what options are available to you as a starting point. That can help you make a decision about whether now is a good time for you to buy a house. Talk to a mortgage broker who can listen to what you want and take into consideration the size of your deposit, whether you can ask family to boost your deposit, your credit history, your annual income, age and your outgoings.
These things shape your options so be as accurate as possible when talking to your broker. Whatever you tell them is confidential and they’re not there to judge, they’re available to you for help and advice.