The UK property market is currently in turmoil. The last few weeks have seen rapidly rising mortgage interest rates and some pretty scary headlines. If you’re in the process of moving house, you may be left wondering what you should do. Is it better to carry on with your move or should you pull out of the sale?
Whether it’s better for you to move forward or withdraw will depend on your individual circumstances, but these questions might help you to consider your options.
What is your current living situation?
If you’re a first-time buyer, and currently living in rental accommodation, it’s worth considering that rent prices are also predicted to rise steeply over the next few months. Landlords are dealing with the same interest rate rises homeowners are facing, and living costs will likely increase further for both renters and property owners.
If you’re currently a property owner and are moving to a larger, more expensive home, you may want to consider how necessary you feel your move is.
Is the property well-priced?
We’re just transitioning out of a very over-heated property market. Pent up demand post Covid-19 led to a strong imbalance, with desire for homes far outstripping the number of available properties. Strong competition for available homes pushed property prices up at an unprecedented rate, with many would-be buyers becoming caught up in bidding wars with other interested parties. Between February 2021 and February 2022, property prices rose by more than 12%.
It’s important to consider how well-priced the property is and how desirable it is. Would there still be demand for the property in a subdued market if you were forced to sell?
Many property experts are expecting prices to drop by 10-20% over the next 12 months. Would you have enough equity in the property to withstand such a decline in value?
Are you in a robust financial position?
Now is not a time to over-stretch yourself financially. Inflation and interest rates are both expected to continue to rise for some time to come. Do you have a robust financial safety net to withstand the changing market?
Could you afford further interest rate rises?
Average mortgage interest rates are currently around 6%. In October 2021 they were 2-2.5%. Some economists are suggesting that we could see them rise as high as 10-12% in the next year. Currently, mortgage ‘stress’ tests assess whether you could still afford the mortgage if rates were to rise by 1%. It’s worth doing your own calculations to see how high you could afford for mortgage interest rates to go before finding yourself in financial difficulty.
Is this your ‘forever home’?
In recent years we’ve seen a trend of people viewing property as a financial investment rather than simply somewhere to live. It is common for people to live in a property for a couple of years, sell at a profit, move to a larger, more expensive home and do the same thing. Those days are likely to be behind us for now. We’ll no longer be able to assume that our homes will go up in value whilst we own them, and many people could see their properties fall in value in the coming months and, potentially, years.
If the property you’re buying is your ‘forever home’ (or at least somewhere you would like to stay for a long time), and you’re in a financial position to proceed, it may still be a sensible move. On a repayment mortgage, you will have cleared your mortgage debt at the end of the term. As long as you’re not likely to have difficulty making your mortgage repayments throughout the full term of the mortgage, the value of the property is only really important at the point of trying to secure a new ‘fixed rate’ mortgage deal or at the point of sale. If you’re concerned about changing mortgage interest rates, you could explore the option of a longer initial fixed term. Mortgage products are currently available with an initial fixed period of as little as 2 years, all the way up to 30+ years, which would mean you could choose to pay the same interest rate for the entire term of the mortgage.
If you’re currently feeling nervous about proceeding with your house move, you are not alone. New figures from Quick Move Now suggest that 40% of property sales are currently falling through before completion, as buyers get cold feet or struggle to secure a mortgage. It’s always sensible to seek independent financial advice before making any large financial commitment, especially in a changing market. Unfortunately, it’s difficult to make too many long-term financial forecasts at the moment, but much of your decision will depend on your current financial stability and your appetite for risk.