Buying a house in the current market
Posted on 31st August 2022 at 09:39
Buying a house in the current market
Anybody with a TV or access to a smart phone will be bombarded with news and updates on the current
economic position we find ourselves in within the UK. Inflation is higher than normal; we have seen
multiple interest rate rises in the last 8 months to combat this and not to mention unprecedented increase
in our fuel prices.
But if you see buying your own home or an investment property as a long-term strategy then the short-
term effects, we are seeing are just that, short term. If you speak with any independent financial adviser
or investment manager, they will tell you to look beyond the next 5 years for your investment future as all
markets can be volatile, but the long-term trend is up. The same goes for house values and the housing
market. The average house price does increase year on year, just ask your parents who bought a
property in the 90s that was worth £30,000 back then, that is now worth £120,000 today. Or anybody
who bought a stock or fund after the start of the millennium that has now increased 10x.
In my opinion you shouldn’t see your home as asset, instead see it for what it is – your home. The safe
place you like living, that you come home to after a long day at work, a place you entertain friends and
family and a place to relax and recharge. The number of people who say, “my house has gone up in
value by £50,000, I’m going to sell it”. That’s great that your house has gone up in value, but when you
sell it to realise the £50,000 profit you have made you no longer have a home. You will instead need to
use that £50,000 as a deposit on another home (or cover your rental payments if you decide to rent) in
which that property would have gone up in value. So in reality, you haven’t gained anything as property
prices are all relative. If your house has gone up in value, so has next doors. Like the old saying goes “a
rising tide raises all boat”.
But the media focuses on the here and now and that is what we will focus on too, by giving you some
tips to make buying and holding a property in today’s market much easier. Now some of these tips are
easier said than done, but if you can implement some of these or be patient enough until you are able to
do these things you will put yourself in the best position possible when it comes to buying your next
Don’t overstretch yourself
The generations before us would say “buy the most expensive house you can because its an
investment” or “stretch yourself as far as you can”. That is a fine idea when interest rates and inflation
are low, but not such a great idea in today’s market. Instead, you should proceed with a little more
caution. Instead of aiming for the property your income and affability dictates you can afford, buy a
property that your monthly budget allows you to buy. If the house of your dreams is going to cost you
£300 per month more than you are comfortably able to spend right now, don’t overstretch yourself. If you
need to buy a cheaper house which would bring with it payments within your budget, so be it. You can
always upsize in the future.
Keep an emergency fund
With the cost of Gas and electric due to rise twice more from the time of writing this (September 2022)
keeping an emergency fund of a couple of months expenses aside in case your bills increase
substantially, this will help you to maintain your lifestyle when this happens. This is good practice in
instances, in case you are unable to work for an extended period in the event of injury, illness or
unemployment. A buffer of 3-6 months of expenses will cover your bills for that time whilst you either
recover or find new employment.
Can you still afford this home if your payments were to increase?
Lenders have recently changed their affordability stress tests in recent weeks due to the increase in
inflation and cost of living. So, lenders are doing this for us as part of their applicaiotn process, but you
should do a test yourself. You should ask yourself “could I still afford to live in this property if my
mortgage payments increased by £100 - £200 per month?” If the answer is yes, brilliant you haven’t
overstretched yourself! If the answer is no, you may find yourself in a position in the future in which your
payemnts become a struggle or worse you may have to move somewhere cheaper.
Consider buying a new build property
There are a few reasons for this, such as lower energy bills and lower maintenance cost. New build
homes come with higher energy efficiency ratings due to new and improved technology and materials
used when building these homes. This will in turn mean that it costs less to heat and power your home,
saving you money on your gas and electric. Buying a new build also means everything is brand new so
there are fewer chances things will break which will cost you money to repair. They also come with
builder warranties too so if anything does break, it should be covered by your warranty.
New build developers can also offer up to 5% of the house value in incentives to help you buy their
homes. The level of incentives will change depending on the time of year and how the developer is
moving towards their sales target. The further away they are from their sales targets or closer they are to
the deadline, the more likely they are to increase their incentives. These sorts of incentives may include
help towards your deposit, paying your solicitor fees or your stamp duty. Whichever incentive you get is
going to make a huge difference.
Get quotes for all services you will use
This goes for everything in life, don’t just go with the first offer you get. Shop around for the services you
will use, gather a few quotes to compare and go with the best one. This could include:
Shopping around for a good deal on all the above can add up to a big saving.
Use a lifetime ISA to save for your deposit
If you are aged between 18-39 and are saving for your first home, you can save up to £4,000 per year in
a lifetime ISA and receive a 25% bonus from the government on all money saved up to that limit. That
additional 25% will really speed up you’re saving or give you an extra 25% to use towards a deposit or
furniture when you move in.
Use an independent mortgage adviser
For most people, your monthly mortgage payment is your biggest outgoing and where you can make the
biggest saving. An independent mortgage adviser can source the market for you and find you the best
deal possible on your home. This could be the mortgage with the lowest interest rate, lowest monthly
payment, or most incentives to make your purchase as smooth as possible. A good mortgage adviser
can be worth their weight in gold.
If you would like any more information or advice on buying your next home, please get in touch
Tagged as: broker, cost of living, deposit, epc, financial crisis, high bills, house, inflation, market, mortgage
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