Property Prices Falling: Is now the time to invest?

Is now the time to buy a house or should you wait for property prices to fall?

House prices have hit a record high for the sixth month in a row, but experts say this trend is not going to last.

As we move into the second half of the year, it is predicted that buyer demand will drop and more sellers will be putting their homes on the market.

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So, is now the right time to invest in property, or should you wait for prices to fall?

According to Rightmove, the average asking price is up 0.4% to £369,968. In London, the average has risen to £692,828. Yet property expert Tim Bannister says that while the market remains ‘hot’ right now, it is ‘moving from a boil to a simmer’.

Why? Because as supply (properties for sale) and demand (prospective buyers) begins to level out, there is more choice and less competition.

Bannister said that ‘having more new sellers this month is a win-win for the market. If you’re thinking of selling your home, you’re likely to achieve a good price, given the sixth asking price record in a row that we’ve now seen’:

In the current fast-changing economic climate, those looking to buy who find a suitable home they can afford may choose to act now rather than wait.

However, right now the number of properties that are for sale is significantly lower than in 2019 when more normal levels were seen, whilst demand remains very high. 

It’s a property bottleneck – plenty of people want to move, but there’s nowhere for them all to go! The situation is putting some homeowners off selling up, which in turn adds to the problem. And for those properties that are available there is inevitably an increase in bidding wars amongst buyers.

Due to this imbalance, Rightmove predicts that we can expect small seasonal price falls over the coming months, rather than the significant drops predicted earlier in the year.

Bannister added that ‘Because of this, we’re forecasting prices will jump by 7% by the end of 2022, rather than the 5% growth we forecasted at the start of the year.’

Are property prices going to fall?

Many people, especially buy-to-let investors and first-time buyers, will be hoping property prices will fall, but of course there is no guarantee if or when this will happen. 

There are several other major factors having an impact on the property market right now, and it’s not good news for buyers. Inflation is currently at its highest in 40 years, rising interest rates have resulted in a 20% hike in mortgage payments, and the cost-of-living continues to spiral

People are feeling the pinch now more than ever and are likely to be more risk averse. As the cost of borrowing goes up, buying somewhere new, or even plans to move into a new rental, become a less attractive option.

What this stagnation does mean is that this is likely to trigger the aforementioned fall in property prices, and this will no doubt tempt some investors into taking the plunge and buying sooner rather than later.

Faith Archer from The Times reports that ‘Experts think the kind of house price rises that we have seen over the past 18 months are unsustainable […] but no one has a crystal ball. A dip is highly likely in the coming months if interest rates rise further though.

Archer advised that ‘If you need and can afford to buy a home now and you plan to live in it for several years, it might be better to bite the bullet’ as ‘There is no point in waiting for a drop in prices which may not happen over the next year or so.’

Wooden stairs, Property prices falling

How is the cost-of-living crisis affecting the housing market?

Warnings about the cost-of-living crisis dominate news headlines at the moment, and are a topic of conversation over many a dinner table.

In an open video letter to the Conservative Party in July 2022, Martin Lewis, founder of Money Saving Expert, warned that ‘we are sitting on a financial time bomb that’s due to explode in September.’

Energy bills for someone on typical use are predicted to rise £3,240 a year from October, says Lewis, and then the price cap is likely to go up a further 4% in January

Will there be some relief in April 2023? Lewis thinks it is unlikely. He warns that:

It was thought we might start to see prices dropping – no; now the prediction is they’ll stay flat or only drop a few per cent. Meaning next April we’ll still be paying on typical use over £1,000 a year more than we are now.

The costs of other essentials like fuel and food are rising all the time too. The fact is, incomes have to stretch in order to cover far more now than they ever have in recent years – and with wages unlikely to rise in line with these increases, it doesn’t look like that financial burden is going to change anytime soon.  

If you’ve invested in a property as a buy-to-let, it may well leave you significantly out of profit as you are unable to find occupants who can afford to rent it.

Will relaxing affordability rules make it easier to get a mortgage?

In an attempt to make it easier for home buyers to take out a mortgage, from August lenders can drop one affordability rule when assessing people’s finances.

This means several things for those looking to invest in property:

  • Borrowers may be able to secure larger loans compared to what they were previously eligible for
  • More first-time buyers may be able to get a mortgage

However, it’s a case of buyer beware. Martin Lewis states that being tempted into a larger mortgage that you can only just afford now could be catastrophic if you cannot afford repayments later as rising interest rates and the cost-of-living crisis continue to take hold. 

Lewis warns that interest rates are up and likely to go up again: ‘The cheapest fixes back in October were just below 1%, now they’re just below 3%, adding £200 a month to a £200,000 mortgage.’

He added that while many are protected by being on fixed rates, millions of fixed rate mortgages are due to end this year and next year and those owners will be facing the new interest rates:  

My concern is when people try and get that cheapest deal they must pass an affordability test. And as the cost-of-living crunch bites, many of those who were just above the limit, hundreds of thousands or potentially millions of people, will fail. And that will mean they might have to move to their much more expensive standard variable rate. Ironic, isn’t it? They can’t afford a cheap rate. So how can they afford to pay much more?

So is now a good time to invest in property?

Rents continue to rise and tenants are struggling or becoming unable to pay due to cost of living squeezes. So before thinking about your next buy-to-let, it’s worth considering investing in Rent Guarantee Insurance to protect what you already have.

But the demand for rental property is still there, with 60% (that’s a 21% increase) of landlords in England and Wales reporting a rise in demand for rentals. 

So the answer is that it really comes down to your personal circumstances. 

Yes, the cost of buying a house looks likely to fall, but probably not enough to bag yourself a bargain. And even if you do, the cost of borrowing doesn’t appear to be coming down any time soon.

Take the time to consider your finances (you can use our free Expense Tracker for this)  and get the right advice before you invest. If you are at all unsure of your ability to cover it all financially – don’t do it!

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