What does a recession mean for the mortgage market?

Usually, though not always, house prices rise during periods of economic growth and slow down in periods of  decline. When a recession is on the horizon, uncertainty about house prices and job losses can halt demand and prevent purchases, resulting in lower property values.

So what can buyers expect next? This short guide explains what the recession could mean for buyers and sellers alike but if you have a pressing question, feel free to message us and an expert will get back to you with the answer you need.

What does a recession mean for sellers?

A recession can lead to falling prices so sellers may benefit from holding out unless they have a desperate need to move. That being said, every situation will be different so keep in mind that while one property in Southampton may sell for a reduced asking price, a similar property in Portsmouth may command the original asking price. 

If you’re a seller looking to get a mortgage to move house, it’s worth being aware that affordability will be a key focus for lenders. You may have gained approval for mortgage in the past but lender criteria may be stricter in light of the economy, so check your affordability with a mortgage advisor before making a decision to sell.  

Is a recession good for first-time buyers?

Low deposit loans have become more difficult to achieve in light of a rise in unemployment and a wavering market, so unfortunately, first-time buyers will now be expected by many lenders to have a deposit of at least 15%. 

In 2020, the average house price in the UK is £232,000, so borrowers will need to have an eye-watering £34,800 in cash before many banks will even consider their application.

As reported in the Telegraph, in the 1990s, an average couple saving 5% of their income could save for a deposit in just four years yet the latest figures suggest that a couple in 2020 could be saving for 21 years.

What’s more, lenders need to feel reassured that borrowers can comfortably afford their repayments, which is why gifted deposits may not always be accepted by some lenders who prefer to see a history of saving and an ability to budget.

Can a first-time buyer get a mortgage in a recession?

But...it’s not all doom and gloom. For those who have been squirrelling away their hard earned cash and are in a position to buy, there are a handful of lenders who specialise in first-time buyer mortgages.

In fact, some lenders actively lend to first-time borrowers, offering incentives such as cashback or reduced fees and despite the economy, there are good deals to be had. With the right advice and guidance, it may still be possible for you to find an advantageous mortgage deal. 

Is a recession good for investors?

Cash or equity rich investors have been known to snap up cheaper properties during periods of economic uncertainty.

Buying low and renovating property during a recession could make a good investment, depending on the buyer, their experience, the location of the property and whether they plan to rent out the property or simply sell on if the market returns to its previous state. 

Our guide on buy-to-let investments can be a handy place to start if you’re considering investing in property during a recession or amid the pandemic. You can also ask our experts for advice via our online chat to get started. 

Ask an expert about the recession