Mortgage mayhem! House prices falling! Developers downing tools! The headlines at the moment are frightening and there is a lot of conflicting information out there.
It is perfectly understandable that people are feeling anxious about the property market. After all, nobody likes making big decisions about whether or not to buy or sell when they don’t feel clear about what is going on.
It is difficult for everybody at the moment and those Londoners facing thousands of pounds a year being added to their mortgage repayments will be feeling the sting.
But I’d argue that it’s especially difficult for aspiring first-time buyers who really are stuck between a rock and a hard place.
On the one hand, mortgage products are being withdrawn from the market, while the average two-year fixed deal rate crossed the six per cent threshold again this week (the last time was after the Truss government’s Mini Budget sent markets into turmoil).
On the other hand, London rents now cost almost 80 per cent of average take-home pay, according to the latest figures from Homelet.
I can’t help you get the cash you need to buy your first home in London (the average deposit is £67,800) but I can help you navigate this confusing moment.
Should I buy now?
If you are currently renting in London and you’re in the lucky position where you’ve got a decent salary and a good chunk of money saved up, should you buy now? Or with mortgage rates climbing and talk of house prices falling this year, could you end up regretting it?
It is always ultimately down to the individual to decide on their situation and their appetite for risk but if I were in this position I would be tempted to still try to buy if only because the real heat is in the rental market at the moment.
Average rents hit a new record high of £2,210pcm and you’ll face serious competition for every home.
Yesterday I was talking to a couple who have twice had to move from rentals they had only been in for six months because the landlord was selling up. This is only going to get more turbulent over the coming year.
I always believe that it’s better to be paying off your mortgage than paying rent and paying off someone else’s mortgage. If you have a stable job, reliable income and a good deposit, I’d say go for it. It is a buyer’s market so if you can find what you are looking for negotiate hard.
Will house prices fall?
The housing market is cyclical. There are some undeniable threats with the cost of living and interest rates putting downwards pressure on the market.
Savills and Knight Frank are predicting house price falls in London this year and next. But both estate agents expect things to start looking up again (as estate agents always do!) by 2025 and forecast that the capital will enter the next phase of the market cycle in 2027 looking strong.
All of this is to say it is unlikely to matter if your house price comes off a few per cent over the next 12 to 24 months, although I understand that it is not a nice feeling. The reverse applies, too, if your property value goes up five per cent it is irrelevant unless you want to sell. And when you do come to sell in five or more years’ time, you should have paid off some of your mortgage.
If you are waiting for house prices to fall further before you buy, bear in mind that trying to time the bottom of the market is extremely difficult and you could just as easily end up missing your moment.
Buy when you can, and buy a home that you think you could happily stay in for at least five years and you should escape the worst of the market fluctuations.
How to choose a property: is location still king?
I don’t think there is a first-time buyer in the land who buys exactly what they want where they want it — that has always been the case, it is not a particular facet of the current market. It’s a first buy, not a forever buy. So you should accept that you are probably going to compromise and move away from where you are renting, which is tough if you love the area.
Given what’s going on in the world and continuing uncertainty, I would err on the side of caution and choose the house that would suit you for longer — it’s the longevity that will be the secret here to not having regrets. That may well mean you change the location in order to get more space.
I was talking to a couple recently who lived in a three-bedroom house and they had two kids. That was fine, it all worked. And then his job changed to permanently working from home. And the house was no longer suitable, there was nowhere for him to work. You want to avoid being forced to sell at a time you don’t choose, so opt for a property that can be flexible and adapt with your life.
Features to look out for
As life unfolds you do start changing your uses. Can the property enable that to happen? Can you move corridors, can you change walls? Can you add value and space, for example via an extension?
If a building is listed you are going to have fewer options. If it is leasehold you will also have to ask your freeholder’s permission to make structural changes.
You can find out what is likely to be possible as soon as you have viewed a home you are interested in by downloading a Property Report from Move iQ for £17.
This is a 45-page report for a specific postcode where you can find out everything you need to know about that property, including what planning permission has been granted or refused on neighbouring properties.
So if you think you might like to do a loft extension in future you can see if that’s likely to be possible and you can put in an offer with more confidence.
Where to buy?
If your budget is strictly “up and coming”, as I imagine many London first-time buyers’ are, then it is worth looking into areas that have lots of investment and change on the horizon. We are talking long term here so you might have to travel for a flat white for a few years.
The big developers have large departments researching areas to invest and build in. It might not be a bad plan to piggyback off that and buy something nearby, because the local facilities are likely to take an upturn.
You needn’t think you have missed the boat if you only move in once an area’s regeneration is well underway either. There’s usually a price bump when a new scheme is announced, and another when building starts and change becomes visible. But the biggest upturn comes when something is built and people start to live there.
Crossrail neighbourhoods including Ealing Broadway and Woolwich were among the biggest risers (up nine per cent and five per cent respectively) in London in the past year since the Elizabeth line opened.
Life is for living
I’ll finish on some personal advice. For me the most important thing to remember is that everything depends on your life circumstances.
Assuming your finances are up to it (and I appreciate that for many people this is always the biggest hurdle) and you want to change cities, or change jobs, or your children want to change schools — or whatever reason you have for wanting to move — then that is the time to do so. It’s what I’ve always done in my own life.
Of course it’s wonderful to time the market, but life is for living and the odd percentage in house prices is only one component in the grand scheme of things.
