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Buy property now, or wait for a house price crash? Here’s what the experts are saying…

Karl 13th Jul 2023 2 Comments

Reading Time: 8 minutes

House prices are falling, with the average UK property now costing 3.5% less than a year ago. Yet while prices are on the slide, these falls do not represent a house price crash in the traditional sense.

For some, this might be a little surprising, given we’ve seen the base rate – which massively impacts new mortgage rates – skyrocket this year.  In July 2022, the Bank of England rate was 1.25%. Today it sits at 5%, and is likely to go even higher.

So given we’re yet to see a real ‘crash’ in prices, will house prices soon start to suffer significant monthly falls? Or is a leveling out of property prices more likely?

In this article we’re going to break down these questions, and explore whether or not it’s better to buy property now, or sit tight. Keep on reading for all the details or click on a link below to jump straight to a specific section…

What is happening with house prices?

According to Nationwide’s House Price Index, house prices are down 3.5% year-on-year (June 2022 to June 2023). Across the whole of the UK, East Anglia was the worst performing region with average prices falling by 4.7% over the past 12 months. Meanwhile, prices in London have fallen by 4.3% over the same period.
Given these falls, the average UK property now costs £262,239. That’s £9,374 less than a year ago, but still £46,000 MORE than the £216,092 average cost of a UK home in February 2020, just before the emergence of Covid-19.

The reason why house prices rose so much during and after the pandemic is down to a number of variables. The Bank of England extensive quantitative easing programme is one of these variables, which refers to the actions of the UK’s central bank willingly printing billions of pounds to support the economy during Covid-19. Data has subsequently shown that much of this money ended up boosting asset prices, such as housing. It’s also caused a huge dollop of inflation too!

You may also remember that during the pandemic the same Bank of England cut interest rates to near-zero, slashing the cost of borrowing, and therefore making mortgages cheaper to service. These policy actions, combined with then-Chancellor Rishi Sunak’s Stamp Duty Holiday, fueled a buying frenzy over the past few years, with many buyers clearly suffering from a bout of FOMO!

However, given the latest data we have on the housing market prices are now tumbling. So, to put it another way, the longstanding house price inflation party is now over.

Why are house prices falling?

Over the past 12 months or so, the global economy has shifted thanks to the end of ‘cheap money’.

In the UK, the introduction of quantitative tightening, soaring interest rates, and the end of government props such as Help to Buy, have all contributed to significant downward pressure on house prices and it’s not difficult to understand why.

Interest rates and the availability of cheap money have a HUGE impact on house prices. That’s because many budding house buyers will typically stretch themselves to borrow as much as possible, in order to secure the nicest house they can possibly afford. And given the UK has experienced years of extraordinary house price inflation, any buyer that has followed this path over the past decade has probably played a blinder – unwittingly or not.

Yet now that higher mortgage rates are here (the average rate on a two-year fixed mortgage rate is now 6.7% according to Moneyfacts) things have changed dramatically. Rather than borrowing to the max at an ultra-low interest rate, buyers now have to seriously consider the impact of paying hefty interest on their mortgage. Likewise, existing homeowners now have to digest the fact that when the time comes to remortgage, their monthly payments are likely to skyrocket.

This is why higher interest rates are arguably the biggest reason why house prices are falling right now, yet it remains to be seen whether the current cocktail is likely to fuel significant falls of 20% or more. Under most definitions, this would signify a ‘crash.’

To learn more about what is driving the current downturn, take a look at our recent article that explores whether a house price crash is coming.

Is now a good time to buy property?

Without a crystal ball, it’s impossible to know for sure whether house prices will continue falling, or whether a crash is just around the corner. What we do know is that the housing market is generally resilient and has the potential to surprise even the most ardent property speculators.

Yet given what we’ve seen so far with the UK housing market, scroll down to discover five reasons why you should, and shouldn’t, dive into the property market right now…

Five reasons to buy property now

1. It’s turning into a buyers market

Spend time on a major property site such as Rightmove and Zoopla and you’ll notice a lot of properties are taking a while to shift. This may be telling us that the post-lockdown buying frenzy and bidding wars may no longer be a ‘thing’. This means buyers now have a chunk of leverage when it comes to negotiating the ‘right price’ – a decent reason for entering the market right now.

2. Mortgage rates are STILL lower than inflation

Yes, mortgage rates have risen dramatically over the past year and anyone taking out a new mortgage in 2023 will be forgiven for feeling they’re being taken for a ride. Yet the fact is, inflation in the UK is still running rampant (8.7% in May), and the average two-year fixed rate mortgage of 6.7% is still below this figure. So, in theory, mortgage buyers can still borrow at below the current rate of inflation. Another reason for going ahead with a property purchase in the current environment.

3. Rates could go even higher

Locking in a fixed mortgage rate could, in hindsight, turn out to be a shrewd decision if interest rates continue rising. And with inflation still high, there’s a fair chance we’re still a long way off peak rates! This is why sitting back and holding tight could be a bad move should interest rates keep rising, and house prices begin to level out.

4. You may have a head start if you’re chain-free

With interest rates rising, there’s little doubt that the risk of buyers pulling out of property transactions has increased. Therefore if you’re a chain-free buyer (perhaps a first-time buyer), then this could put you in a strong position given the current market. After all, if you’re a seller with your eyes on another property, would you prefer a chain-free buyer, or one that is reliant on several other transactions in order to seal the deal?

5. Rents are rising

If you don’t already own then there’s a fair chance you rent. Because interest rates are rising and we’ve a severe housing shortage in the UK, many landlords are shifting the extra burden to tenants (rent is up 4.5% in England in 2023). So if you’re currently a non-homeowner, then making a decision to hold off buying property could mean you’ll have to fork out more in rent.

Five reasons to sit tight

Now we’ve explored five reasons for buying property in the current market, let’s take a look at the other side of the coin…

1. House prices could fall further

Perhaps the biggest reason to hold off buying now is the expectation among many that house prices will keep falling. And given we know the inverse relationship between higher interest rates and house prices, it would take a brave individual to bet against property becoming more affordable in future.

2. The lack of certainty

Will interest rates fall next year, leading to a surge in house prices? Or, if rates continue rising, will you be able to afford to re-mortgage in future? These are big questions that many budding buyers should be asking themselves. Sadly, however, they’re both questions that are very tricky to answer right now given the current market uncertainty. This is why holding off and sitting tight, could be a good option for those with a risk-averse mindset!

3. The ‘opportunity cost’ of spending your deposit

While savings rates are currently lower than inflation, they’re still the highest they’ve been in decades. So if you think house prices may continue falling, you may be inclined to hold off buying property, and stashing your house deposit in a decent savings – or investing – account instead. That way, if and when house prices eventually ‘level off’ you may find yourself in a better position to put down cash on the table.

4. The lack of properties on the market

The UK suffers from a colossal housing shortage, thanks to restrictive planning laws, and the failure of successive governments to build enough new housing.

So even though prices may be sliding, estate agents hardly have an abundance of properties on their books right now, meaning even those buyers willing to take on mountains of high interest mortgage debt have slim pickings. This is why some wannabe homeowners may decide to hold off buying property right now and wait for a deluge of properties to flood the market, as those unable to cope with higher mortgage rates are forced to sell their homes. (Of course, there’s a chance this won’t happen).

5. It’s expensive to renovate a home right now

An often overlooked reason against buying property right now is the cost of doing renovations. It’s rare to find a property that is entirely without fault, so if you buy a property that needs some work on it then, chances are, you’ll probably need to borrow at a high interest rate in order to finance the work. And that’s not forgetting the cost of labour which has exploded over the past few years.

This is another reason against buying a property right now, or at least one that requires more than a lick of paint!

Are we heading for a house price crash? Here’s what the experts say…

It’s fair to say most property experts aren’t particularly bullish about the housing market. That said, many are also shying away from predicting a huge crash which, no doubt, is what many first-time buyers are hoping for.

Robert Gardner, Nationwide’s Chief Economist, is one such expert who suggests the housing market could experience a ‘soft landing’. He explains: ‘A relatively soft landing is still possible, providing the broader economy performs as we (and most other forecasters) expect.

‘Labour market conditions are expected to remain relatively robust, with the unemployment rate remaining below 5%, while income growth is projected to remain solid. With Bank Rate likely to peak in the quarters ahead, longer term interest rates should also start to fall back.’

Gardner continues: ‘As a result, a combination of healthy rates of income growth and modest price declines should improve affordability over time, especially if mortgage rates moderate.’

Meanwhile, Estate agents Savills, and risk assessment firm Moody’s, have both suggested house prices will decline by 10% this year.

Jonathan Rolande, of the National Association of Property Buyers, echoes this general sentiment. He explains: ‘It is difficult to see what might happen to stop the decline of UK house prices. With average prices failing to keep up with general inflation, it can be argued that property has already lost a substantial amount of value. It seems likely that the coming months will see further drops in prices, achieved quite possibly wiping off a few percent or so by the end of the year.

‘Moody’s prediction of a 10% drop over two years may well be correct. The worrying thing here isn’t just the fact that homes will be worth less than many have paid, it is also the length of time things are predicted to be difficult.’

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8 months ago

In 2020/21 I sold my mother Bungalow and most of the offers were way below the asking price and were declined by me but my brother just wanted to accept the first offer made which was under £200,000.
I eventually accepted an offer of £217,500 when the asking price was £225,000.

Carole Wayfair
Carole Wayfair
8 months ago

Thank you for this – I think so many of us are really panicking. It’s taken me thirteen years to get my deposit saved!! I’m just about to buy and utterly lost …

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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