Buying or selling? How to steer a path through the current rocky housing market

For millions of Britons who had plans to move house or get on the property ladder this year, the latest mortgage misery coupled with the cost of living crisis makes paints a grim picture.

House prices fell 3.5 per cent in June, when compared with last year, according to the latest Nationwide housing index. This is the fastest drop since 2009, thanks to the pressure of increasing mortgage rates. Yet it’s hard to predict what will happen next as they also rose unexpectedly by 0.1 per cent in the last month to an average of £262,239.

Following the Bank of England’s latest base rate rise to five per cent, mortgage rates have continued to rise and average two-year fixed-rate deals are now 6.37 per cent and five-year fixes are at 5.94 per cent. It is now predicted the base rate could reach 6.5 per cent by the end of the year by many including investment bank Schroders, which said the latest interest rate hike “suggests that the BoE remains far from getting on top of inflation”.

It is a dilemma for anyone thinking of selling their home or trying to buy. Should they wait until next year in the hope that inflation and interest rates will ease? We asked some property market experts for their tips.

Stalled prices don’t have to mean delaying your plans to sell and move

For homeowners hoping to sell and move, rates will have risen, pushing up the cost of monthly repayments, while the value of their house may also have frozen or fallen. They may also be contending with less income each month, due to rising prices and inflation, and higher debt.

For some, this will mean delaying plans to buy a new house – but this doesn’t have to be the case.

Ross Lacey, director and chartered financial planner at Fairview Financial Management, said: “As a homeowner, if you want to move then even if your property price may be lower today than it was a year ago, so will the property you’re buying, all other things being equal.”

Lacey also says homeowners may be able to “port” their mortgage to the new property, and this could help them to avoid any early repayment charges and “continue to benefit from what may be a very competitive rate compared to what you’d get now.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, advises: “If you are thinking of buying, work out what you can afford now that rates have risen, and potentially have further to go, as well as the higher cost of living which lenders will factor into affordability calculations.

“It may well be that the numbers still add up, and with prices softening in parts of the country, you may find that there are deals to be done.”

Starting the conversation and working out your budget with rising prices factored in is a first step.

Ben Nicoll, sales manager at estate agency Antony Roberts, says: “The best advice for buyers in this market is simply to make an offer and get the conversation started. While larger freehold homes are still commanding robust values, first-time buyers will discover opportunities in apartments and smaller houses.

“Summer, especially August, is one of the quietest times in the year for estate agents. For buyers actively looking this presents a great window to competitively offer on available properties when there is very little competition.”

Downsizing is another option for homeowners who are unable to afford their current repayments. This could also present an opportunity for first-time buyers as it frees up more properties on to the market.

However, moving will still be off the cards for many people due to rising prices and lack of affordability. For those who are putting plans on ice, Harris says they should focus on consolidating their finances over the coming months.

“If you have a lot of debt on credit cards charging a high rate of interest now may be a good time to clear that debt, perhaps by extending your mortgage to take advantage of higher house prices and more equity in your home. However, if you take this approach it is important not to run up the debt again,” he adds.

Be wary of low-deposit mortgages

One of the highest hurdles for first-time buyers trying to get onto the property ladder is saving a deposit. Yet with prices soaring forcing many people to dip into their savings to pay for everyday spending, the ability to put money away for a deposit is diminishing.

First-time buyers typically need a 10 per cent deposit and this is now equal to around 55 per cent of a person’s gross income, according to Nationwide.

When you throw in a five per cent annual rise to rental prices in May, the highest seen for seven years, according to the Office of National Statistics (ONS), it paints a grim picture for tenants and potential homeowners.

Alice Haine, personal finance analyst at Bestinvest, said: “A carefully saved deposit may no longer be enough to secure the home they want because rising mortgage rates will make the repayments unattainable.”

Haine also warns those wanting to get onto the ladder to be cautious about choosing a low-deposit or a 100 per cent mortgage, both of which have begun appearing again by mortgage providers over the last year. While these can help those with a small deposit, she says they could leave homeowners in a vulnerable position if prices fall further.

She adds: “Those determined to buy should be wary of low-deposit mortgages as this could leave them very exposed if house prices plunge dramatically. The bigger the deposit they can put down the better, as this not only secures better rates but also offers some protection in a falling housing market.

“Those considering a 100 per cent mortgage should be particularly cautious, as they could end up in negative equity where the house is worth less than the amount they owe.”

Haine adds that for some pausing buying plans may be a sensible option as it “offers breathing space to see if the spike in mortgage rates stabilises or property prices fall”.

For those first-time buyers who can still afford to buy, she says “now is the time to haggle on the asking price, sellers no longer have the upper hand and the less you borrow, the less vulnerable your finances will be.”

Keeping a close watch on the mortgage market is key, whatever situation a first-time buyer is in.

Rachel Springall, spokesperson for Moneyfacts, said: “New buyers looking to get their foot onto the property ladder will still be facing a housing supply shortage and their deposits may not stretch far. These borrowers remain vital to keep the mortgage market moving, so hopefully more positive innovative changes will surface to support these buyers.

“In the meantime, it would be wise for borrowers to keep a close eye on the mortgage market, housing supply and house prices, particularly for new buyers who are a critical part of keeping the market moving.”

Don’t let the economy put you off making a big decision

The overarching advice being given by most in the housing market is that whatever is happening across the country, whether someone can buy, or sell, their home will be dependent on their own financial situation.

While we’re in a deeply turbulent time in this market, which is likely to continue for some time, if someone can afford to buy a home, and is financially secure enough to withhold any further hikes, their plan to buy will probably remain in place.

Brian Murphy, head of lending at Mortgage Advice Bureau, said: “For first-time buyers and indeed anyone looking to buy, there is no one size fits all approach.

“There will always be motivated buyers and indeed sellers, for example if someone is moving for work or family reasons they will likely have to sell or buy regardless of the economic situation. What I would say is for some affordability might be tougher, and for those it might be the case of compromising either over location or the size.

“My golden rule is if it is the right property for you, at the right time for you, and you can afford it, then you shouldn’t let the economic situation affect the decision.”