Should I proceed with a property purchase in the current climate?

Home prices have seen some large gains in the past couple of years. Leaving home buyers wondering if they should move forward with a home purchase. Property is still in high demand and buyers may need to move quickly to snag their dream home.

To compound the urgency, interest rates that have remained relatively low are on the move, with experts predicting that rates are set to rise by the end of the year.

However, it’s not all bad news, even with a predicted interest rate increase, mortgages may still remain affordable. With an interest hike expected to be around half a percent, this means that mortgage payments will still be reasonable.

For buyers with a healthy deposit, there are still very favourable terms to be had, and sub-1 % mortgage deals can still be found with select lenders. Even though the stamp duty holiday has now passed there are some incentives that buyers may be able to take advantage of, and 5% deposit schemes are still in effect.

The recent surge in home sales has been driven by great financing and pent-up post-Covid demand. Other factors affecting the demand are the end of the furlough scheme and fears of a possible rise in inflation up to a possible 4%. This all leaves buyers in a tricky position, wondering whether to proceed with a purchase or wait for a possible cooling-off period where demand levels off and home inventory increases.

Mortgage Guarantee Scheme

For purchasers that wish to buy before the end of 2022, low deposit schemes are available. The Mortgage Guarantee Scheme launched earlier this year allows buyers to purchase a home with just a 5% deposit. If you are currently wanting to purchase a new home it may still be advisable to proceed, home prices are high, but mortgage rates are low, and for those that want to move, mortgage deals can still be found.

For first-time or younger buyers that have struggled to save large deposits, this scheme has been a gateway into property ownership. Second and third-time home buyers have also been able to take advantage of the low deposit scheme with the initiative being extended to all prospective home purchases.

It could be wise for buyers to take the plunge while the Mortgage Guarantee Scheme is still in effect. The government-backed scheme will run until the end of 2022 and can be used to buy any home that is valued at under £600,000. Mortgages taken under the scheme must be a repayment loan for a residential property. The scheme cannot be used to finance buy-to-let properties and the offer doesn’t extend to company purchasers.

Will home prices keep going up?

A boom in home sales prices was evident through the recent Covid pandemic and has led to some uncertainty in the market. There are some that expect the increase in property values to continue, however, among most industry experts the indications are that a slowdown overall is on the way and may continue to slow over the next 5 years.

A recent quote from BBC Business News states: “House price rises of 1.9% in 2024, 2.9% in 2025, and 3.5% in 2026, have been predicted by the OBR”.

With market factors like interest rates and inflation going up, could this mean a slowdown in home sales? It looks likely given the converging influences and demand lessening in a post-pandemic market. However, prices may continue to remain at the current level even as the market slows, and rental prices are predicted to remain high. This can cause problems for buyers struggling to save a deposit.

Home price increases may rise slowly, but there are still indications that mortgage costs will not sustain current low rates. With all things considered it may be wise for buyers to bite the bullet and move forward with a home purchase before the end of the year, while the cost of borrowing still remains low. The latest studies seem to indicate that low-priced mortgage deals and incentives will not remain for much longer.