Will the UK’s real estate market suffer irrevocably in 2023? It is difficult to say; however, there is buzz that there could be a mild recession in the UK this year. And although house prices rose steeply in 2021 and most of 2022, the past few months have been witnessing a price dip.

What makes the situation more difficult for everyone in the real estate ecosystem is that –

– Interest rates have gone up, which translates to more expensive mortgages
– Inflation has risen, which translates to the lower spending power of people

How have house prices changed in the UK?

In 2021 and much of 2022, the pace of growth of house prices was much more than the post-2008 recession price inflation. However, this has dipped consistently over the last few months. As a result, the yearly growth rate is almost heading to zero.

How does a drop in house prices affect the real estate market?

In November 2022, the government was advised that house prices would fall by 9% in two years.

– However, since interest rates have significantly gone up, people cannot afford to borrow as much as they could previously. This means lower offers on houses and thus less demand. Lesser transactions and offers translate to a weaker real estate market.

– The immediate effect is on the people who are considering a move. While some prospective sellers will delay their sale, homeowners find themselves with less money to set aside for moving.

– If interest rates continue to be high, more people will have to shift from the current fixed-price mortgage to revised rates on the higher side. And when people find these unaffordable, they may decide to sell their properties.

– First-time buyers may find prices more affordable, thus making it easier for them to get on the property ladder. But getting an affordable mortgage could be a task.

– Homeowners may find themselves in negative equity because their borrowed amount could be higher than their property’s current value.

All this adds up to a more disturbing economic slowdown as people would feel financially insecure and end up saving more than spending.

Does the dip mean a house price crash?

In November 2022, the Bank of England hiked their interest rate by 0.75% to 3%, the biggest hike since 1989. Post the announcement of the mini-budget, there was speculation that the interest rate would be more than 6% this year. However, it is now expected to be less than 5%.

The pre-recession scenario was ripe with 100% mortgages and cashback offers. However, the recession led to extremely tight and stringent rules for mortgage lending.

For those who have enough savings built up, this could be the opportune time for homeownership. Due to rate cuts, buying a home would be more affordable. So if you are planning to buy a house or property, Glentree Estates can assist you.

Traditionally, people would keep renting till they save up enough to pay for the deposit when purchasing a property. However, with rents increasing by 12% as of December 2022, it may have become harder for prospective buyers to set aside money.

While owning a home is a dream for everyone, renting also comes with its share of benefits. Depending on personal circumstances, financial positions and priorities, both have advantages and disadvantages.

Either way, housing costs have witnessed a steep rise in the past year, with mortgage rates shooting up. As a result, prospective buyers and renters are weighing the pros and cons of getting the cheaper option.

What are the pros and cons of renting?

Although rental prices are increasing, buying may still be out of reach for most people despite the aid of government schemes. For them, renting a home might be more beneficial till they are in a better financial position to buy.

Advantages of renting

– A tenancy contract can be for as less as six months, which gives you the flexibility to move if it isn’t working out.
– You can consider a different kind of property or even an area.
– It’s easier to move out of a rented home.
– Maintenance costs are not your worry.
– You don’t have to spend on furniture if it’s a furniture space.
– There are no legal requirements or fees.

Disadvantages of renting

– Landlords can increase rent at every lease renewal point.
– Maintenance is not in your control, so repair work may take longer.
– Upfront costs would include the deposit and sometimes the rent for the first month, in addition to moving costs.
– If the landlord wants to sell the place and asks you to vacate, you have to do so.
– Getting a deposit refund from landlords may be a battle.
– The rent you pay doesn’t come back to you, as compared to mortgage payments, which add up to owning your own home.
– Any redecoration or changes can be done only after approval from the landlord.

What are the pros and cons of buying?

Even for those who can afford it, buying may seem more expensive from a short-term perspective. But in the long run, it outweighs the cost benefits of renting. As a ballpark timeframe, you could consider two years to be the tipping point when mortgage payments would be lesser than rent payments.

Advantages of buying

– Your home is your own, and you would not be at the mercy of a third person like a landlord.
– You can decorate or redecorate at your pace and convenience.
– Repair and maintenance would be quicker.
– Even though mortgage interest rates have increased, it’s still lower than renting.
– Once the mortgage period is over, you don’t have any more payments.
– It also becomes an investment. Based on property prices, if you want to sell and move to a better property, you can do so.

Disadvantages of buying

– Saving to make your deposit isn’t easy, especially since prices have gone up.
– Payments include mortgage and legal payments, and also stamp duty.
– Repairs and maintenance costs are recurring and lifelong expenses.
– The housing market situation and price movements will affect your home equity and hence affect you if you have to remortgage or sell your home.
– It may take months to sell property, irrespective of the market situation.
– Interest rates are going higher, which translates to higher mortgage payments too.

Please feel free to contact us at Glentree Estates, if you are interested in purchasing or renting a property in the United Kingdom.

Buying a property like a house is a long-term financial investment and commitment. Most often, buyers take mortgages to support their purchase decision. Based on the financial position of individuals, various schemes and options are available to avail of a mortgage.

To be approved for a mortgage, you must make an upfront payment known as a deposit. This is adjusted against the value of your property. The higher your deposit amount, the lesser you have to borrow; hence, your monthly payments would be lesser.

How to determine the deposit required for a mortgage?

The deposit amount is determined based on the cost of the property. The lender will assess your deposit based on how much you are eligible to borrow. Most often, 10% of the property value is required as a deposit. In some instances, it can be reduced to 5%.

It is better to opt for a higher deposit if that is possible for you –

– It reduces the Loan to Value, meaning you borrow less, and your monthly payments would be lower.
– It speaks as credibility for you with the mortgage lender and can help to get better deals and low-interest rates.

If you are a first-time buyer, you will have to front 15% of the property cost as the deposit. If your deposit is higher, the interest rate and monthly payment amount would be lower.

Does the deposit amount vary for certain categories?

If your record has bad credit, some lenders may ask for a bigger deposit. But there are some lenders who are willing to overlook bad credit scores and lend money with conditions. They consider certain exceptions and tailor-make mortgage schemes to help those whose financial history may be complicated.

If you are self-employed, that’s a cause of concern for moneylenders as they feel they may not be able to verify your income. They would ask for higher deposit amounts.

A greater deposit of at least 25% may be required if you are purchasing a second home. And you may be required to pay a higher rate of interest. The mortgage process is the same but with stricter criteria, and you would have to prove that you could afford both mortgages.

Is a no-deposit mortgage available?

Currently, the market does not support a no-deposit mortgage scheme. There may be a few specialist lenders who offer them sometimes. But you would have to show a spotless credit history. And the market would have to be very strong and stable for lenders to be confident in taking this step.

You could try for a guarantor mortgage if you can’t pay the deposit. Someone else has to make your payments legally, and his or her home would be secured for your mortgage. They would have to pay outstanding costs if the bank takes possession of your house and sells it.

The government has a Help to Buy scheme wherein first-time buyers can avail of a 5% deposit-only option. In addition, the government gives an equity loan to help you get started on the property ladder.