A recent quote has surfaced from Christopher Watkin, an experienced property professional…
“In 1957, interest rates jumped significantly meaning mortgage rates were 7.5%. If you waited for interest rates to go down to what they were 18months before, you wouldn’t have purchased a home until 2008.
You would have rented for 51 years waiting for rates to go down, meanwhile the value of property increased by 9,351% (that is not a typo).
Don’t wait to buy property – Buy property and wait”.
The Mortgage Broker has seen some hurdles over the last 20 years. Most notably the financial crash in 2008 of course more recently, Covid19, with which everyone suffered. Financial highs and lows have been happening since records began with some infamous periods such as The Great Depression, the double-digit interest rates of the 90’s and more recently, the mess we seem to be in that hasn’t yet been named.
Everyone was unsure how the pandemic would affect the housing market. A couple of weeks at home, followed by a few weeks of estate agents being closed with no viewings and lenders increasing rates would mean a couple of flat months. However, with the stamp duty holiday and lenders, who have been far more resilient than ever, the market bounced back relatively quickly.
Unfortunately, with events across the UK and indeed, around the world, it seemed this was the start of a difficult couple of years with more highs and lows in such a short space of time than any of us had experienced for quite some time.
The billion dollar question is now – “is it a good time to buy”.
In our minds at The Mortgage Broker, the question really is “Is it the right time for you?”
We have seen rents increase over the last 12 months because of Buy-to-Let mortgage rates that landlords are paying. This is unfortunately only going to continue with a further £120bn+ of Buy-to-Let’s due to remortgage in the next 18 months. Therefore, it is fair to expect the pattern to continue within this time frame
Therefore, if you are able to buy a property, and pay your own mortgage instead of rent, why wouldn’t you?
It could be said with the rent increases, that you are better buying now rather than pay the expected rental costs.
Reasons to Buy:
Stamp duty is currently the lowest it has been for years. If you wanted to buy a decade ago, despite lower mortgage rates, you would be paying a full stamp duty on any property over £125,000. Now, with the tiers, first time buyers could be paying nil stamp duty on homes up to £400,000, which could be a saving of roughly £7,000, with next time buyers still saving on the first £250,000 of the purchase price.
New Normal: Mortgage rates are higher than we have seen for a number of years, yes. However, there is no benefit in looking at what they were, and see what you could have done, and in fact make your financial decisions based on your circumstances today. You can never say never, but waiting for interest rates to drop back to those levels, you could be waiting a number of years, and indeed, paying increasing levels of rent.
Interest rates are not going to drop overnight and whilst we have thankfully seen the brakes applied to the rise in The Bank of England Base Rate, there are several factors that influence mortgage lenders.
We are not going to go into large detail on this within this article but there are economic vehicles that illustrate rate changes. A significant driver in mortgage lender interest rates are “swap rates” – the lesser know market where lenders borrow money between themselves. These have recently has done good news following the announcement that Bank of England were not raising interest rates from 5.25%. However, everything takes time to take effect. A simple illustration is a forecast from Capital Economics that have predicted it will be some 2 to 3 years, before you see significant reductions. Even then, we are still living in a new normal.
Your circumstances are crucial to your decision. Taking a mortgage now, instead of in say 3-5 years’ time, means you can start to repay your own mortgage. This will ultimately result in more comfortable mortgage payments in the future, and of course give you more time in which to spread the payments (the longer the mortgage the lower the monthly repayments are). Therefore, comparing to your rental payments, or understanding what you can get now is very important. Especially with the right mortgages that can allow you to review when the rates drop anyway.
Be Mortgage Ready and Get The Best Property Prices: “I want to wait for property prices to come down” is another statement we hear frequently. Property prices are driven by supply and demand. The more demand there is for property, the more the price will increase. The current market suggests lots of people are holding off buying, so less demand for property, which in turns means now is a good time to get in with some price negotiations. Having said this, stats do show we are some 4 million short on the governments target for new homes. Therefore, either way, you are in a much stronger position by making yourself mortgage ready.
Borrowing and Affordability: Borrowing capacity is still high. We have lenders who, on average, lend 4-5 times income, but there are some who can lend 5.5 times your salary (affordability assessment still required). In periods where the market “crashes” lenders will usually tighten their criteria, meaning you can borrow less, however, there are plenty of products being made available to support home buyers.
Deposits are currently at a very low, meaning the amount mortgage lenders require home buyers to put up front is less. This helps get consumers on the property ladder.
In all periods of economic downturn, or financial unrest, the first thing lenders tend to do is to increase how much deposit clients need to put forward. We saw this happen almost overnight in March 2020, when 90% and 95% mortgages were all withdrawn from the market, but thankfully within 4-5 months, we saw 90% mortgages come back slowly, with almost a full market range of 90% and 95% options available within the year.
In today’s market there are 95% options, even 100% purchase options, shared ownership schemes, as well as several family assist schemes, meaning there are more options than ever for buyers to get on the ladder with a minimal deposit. Adding to this, we have lenders who will cover high loan to values on various elements of criteria such as applicants on a visa (95% possible) and with previous credit issues (90% possible).
If you are in a situation with slightly “outside the box” needs, and we can find a mortgage solution for you, why wouldn’t you take it? These options may not always be available.
Mortgage Flexibility: Of course, there are many mortgage products out there, and plenty of those comes with flexibility and every time you get advice from a Mortgage Broker, they will ensure the mortgage is suitable, sustainable and affordable for your circumstances. There are plenty of mortgages that allow you to be flexible, monitor the market and react further down the line, if that drop does come that you were hoping for.
All in all – when looking at the “perfect” time to buy, there is no such thing. The key elements are deposit, borrowing power, and available properties. If you have your deposit, your income is enough, and you can find a property, why would you not buy? Imagine being told today that your deposit is enough, you can buy a home that suits you, with a mortgage payment you can afford…. And then you choose to wait. And in a year, your situation has not changed, but the market has, and you can no longer buy, because one of those elements now doesn’t work. Its disheartening, and we cannot ever tell when the world will spin back to allow you to buy again.
With the right financial advice, you can make an informed decision and decide if now is the right time to buy. On the face of it, higher mortgage rates mean it surely cannot be a good time to get a mortgage. This is not the case. Yes, the mortgage rate in isolation is more expensive to pay back, but the opportunity cost could be a whole lot higher. Not only could you miss out on securing the right product, but you could also be paying off someone else’s mortgage.
Control the controllables, and in the words of Christopher Watkin.
Don’t wait to buy property.
Buy property and wait”.