Would now be a good time to buy a house?

Would now be a good time to buy a house? That’s something many people might be asking as they wonder where UK house prices will go in 2023.

According to the latest data from online real estate Zoopla, house price growth slowed to a standstill in the final quarter of 2022 following a 50% drop in buyer demand.

That meant house price inflation slowed to 6.5% by the end of 2022 from 8.3% at the end of 2021.

Data from the Halifax and Nationwide house price indexes showed similar figures. According to Halifax UK house prices fell for four months in a row while Nationwide said annual house price growth for 2022 was a meagre 2.8%. The average cost of a UK property now stands at £262,068.

The drop in house prices last year was triggered by the fallout from Kwasi Kwarteng’s disastrous mini-Budget in September. It spooked the markets and mortgage rates hit an eye-watering 6.65%.

But mortgage rates have fallen in recent weeks, and the market seems to have settled. Even so, we explore whether a house market crash is coming in our article –  House prices could fall 30% – should investors be worried about a repeat of 2008.

We assess what’s happening in the market right now and whether now is a good time to buy a home.

Could house prices see a boost from falling interest rates?

Buyers retreated from the market last autumn as interest rates on mortgage products spiked, but it now looks as if the market is starting to calm down.

Interest rates are expected to go up again – we’ll find out by how much when the Monetary Policy Committee next meets on 2 February, but, at this point, another increase is pretty much certain. Experts currently expect rates to peak at 4.5% this year.

Higher borrowing rates undoubtedly make it more difficult for buyers to get onto the property ladder. On top of that there’s also the fact that the UK is entering a recession, which affects buyer confidence.

What’s happening with mortgage rates?

Despite higher interest rates, mortgage rates have fallen from their 6.65% peak. The average two-year fix stands at 5.6% while the average five-year deal is priced at 5.42%, according to the financial analyst Moneyfacts.

Some brokers are even predicting mortgage rates will fall by as much as 25%, or even 30% by the end of 2023.

Experts are predicting a further slowdown in both house prices and average mortgage rates this year.

Santander cut its rates by up to 0.2%, while Barclays reduced the rates on some of its product range by up to 0.27%

Yorkshire Building Society reduced its fixed rate offerings by up to 0.75%. Principality Building Society also made cuts across the majority of its fixed products.

Halifax, Nationwide and Virgin Money also all made cuts to their mortgage rates, by up to 0.20%, 0.20% and 0.73% respectively.

Property affordability and the cost of living crisis are both weighing on the purchasing power of buyers. High energy costs are also a factor.

While the Energy Price Guarantee is being extended in April, it will become less generous, with the typical average household seeing their average annual energy bill rise from £2,500 to £3,000. This will continue to eat into disposable incomes.

If you do spot a decent mortgage rate that you can afford, it could be wise to move quickly and lock it in, as good deals don’t hang around for long. The average shelf life of a mortgage product is currently just 15 days, according to Moneyfacts.

What’s happening in the housing market?

In the last four months of 2022, there were lots of dismal statistics and anecdotes about falling house prices and property deals falling through. Demand fell and sales slumped.

Even though demand fell by 50% in the final quarter of 2022 according to Zoopla’s data, it is beginning to recover and remains 10% above 2019 levels.

But it does remain well below the levels seen between 2020 and 2022. “This is not surprising,” says Zoopla. “The last 3 years have been exceptional with the pandemic reshaping how households think about housing, driving more moves.

Is now a good time to buy a house for first-time buyers?

Chancellor Jeremy Hunt decided to keep the cuts to stamp duty announced by his predecessor Kwasi Kwarteng in his mini-Budget.

However, in his Autumn Statement (17 November 2022), Hunt said these will be phased out from March 2025.

The knowledge that the stamp duty cut is now only temporary might incentivise some buyers, but it may not be enough to combat rising interest rates.

Sarah Coles, senior personal finance analyst at the investment platform Hargreaves Lansdown, explains: “The stamp duty cut could save a significant chunk of cash – particularly if you are a first-time buyer and the property would have been over the [previous £300,000] threshold.

“If you’re able to plough any money you had saved for stamp duty into a property deposit, you may be able to borrow less, reducing your monthly payments, which could make a big difference when you’re trying to make ends meet in the coming months.”

First-time buyers may also benefit from other incentives such as lower mortgage rates. The interest rate on certain guarantor mortgages – aimed at first-time buyers – is below 4%.

So when is a good time to buy a house?

With so much uncertainty, it can be tricky to work out whether or not to buy a house.

There’s no telling what will happen to property prices over the next couple of years. Rising mortgage rates could force prices lower, especially if the economy gets weaker.

However, wages are rising, the supply of properties is limited and around a third of households own their homes outright. That’s a lot of equity in the bank of mum and dad to support first-time buyers.

All in all, the answer to the question of whether or not it is a good time to buy a house really depends on your personal situation.

If you’ve found your dream property, have the money and are ready to go, then there’s no need to hold back.