Is now a good time to buy a house?

27/11/20

Aidan-BDM

Is water wet? What colour is nothing? Is darts a sport?

Much like these classics, you won’t find the answer to the age-old ‘is now a good time to buy a house?’ questions anywhere in your CeMap study book. And yet, along with ‘which way are interest rates going?’ this is the question most likely to be posed to mortgage professionals across the country.

It always amuses me that moving house, and more specifically, house prices, appear to be subjects upon which many people claim expertise. To what extent do we, as mortgage professionals, challenge customer assumptions? Should we?

Leaving to one side the legal and ethical constraints, I’ll have a stab at my ‘man in the pub’ answer, focussing on the effects COVID-19 and the current stamp duty rush.

Important note: Obviously I need to make it clear that this blog certainly does not constitute to mortgage advice, and of course, those considering a house purchase should consult a friendly, intermediary for professional and fully regulated advice.

Four Key Questions

Let’s lay down some parameters. For argument’s sake I’m assuming here that:

  • formal advice will be sought;
  • a mortgage is affordable;
  • a mortgage is likely to be obtained;
  • a suitable, mortgageable property can be found;
  • there are no obvious reasons, personal or otherwise, why now might not be the right time to move.

Given the above, here then is my ‘man in the pub’ opinion, and for me it hinges on four key questions:

1 – Is their employment secure?

Given the current climate, for me this remains a vitally important question. Even if additional funds aren’t being borrowed, and account for stamp duty savings, moving house remains a costly process. Would a house purchase still be committed to if anyone involved in the purchase had a significant change in employment status? Do they have savings should their situation change? They should be confident on the answers to these questions.

2 – Might there be a need to move again?

With house prices rising, but the economic future uncertain, there’s a risk that the market could see prices fall in the near future. If they fell by more than 5%, recent borrowers might get stuck in a position where only a hard-to-find 90% or 95% mortgage, or a downsize, would be required to move. If there’s any chance they might need to move again quickly, I’d be more cautious.

3 – Is high LTV borrowing needed?

If only a small deposit (5-10%) is what the borrower has, options are currently limited and any mortgage is likely to be significantly more expensive than the next LTV tier down. Could a slightly larger deposit be found to benefit from a cheaper mortgage? It’s worth considering, even if it might take a little longer to save.

4 – What’s the reason for the move?

If the answer is only “to save on stamp duty”, then I’d have a real think. House prices are rising fast and could fall when the stamp duty rush is over – does the maths make sense? For late starters, there’s also now a risk that any delay in the transactional chain, be it a purchase falling through or hold-ups in conveyancing, might mean that completion happens after 31 March and stamp duty is liable. If the house purchase wouldn’t be happening in that scenario, or if this is likely to pose significant financial challenges, I’d argue that the house purchase shouldn’t be happening at all.

Inconclusive Conclusions

No-one has a definitive answer and anyone who claims to, can they really be that sure? There are lots of reasons why buying now might be a great idea: stamp duty savings, a buoyant sellers’ market, low mortgage rates and house prices marching up. Likewise, there are also reasons to be cautious. Every client is different, and everyone comes loaded with their own bias and opinion.

Here I will venture my own. Buying a home is like any other big decision, and the best way is to approach it rationally. Ask yourself non-emotional questions like: ‘what is my goal?’, ‘do I have any realistic alternatives?’, ‘what do I know?’, ‘what don’t I know?’ and ‘what would happen if it went wrong?’. If you can answer these, plus the four above, then now is the time to get some proper advice from someone who knows what they’re talking about!

Good luck out there – it’s hectic at the moment!

These views are Alex’s own.

Alex Beavis
Head of Mortgage Products

All information correct at time of publish.