"In 2023, falling house prices offer an opportunity for first-time buyers, while rising mortgage rates pose affordability challenges"
As the property market experiences fluctuations and potential challenges, prospective buyers find themselves facing crucial questions - is 2023 the right time to buy a property? and if so, what should you be aware of?
Falling house prices
The recent drop in house prices - with a 3.4% decline in the year to May - presents a significant advantage for first-time buyers. After years of witnessing property values continuously climb, even during the pandemic, the prospect of more affordable homes emerges. With prices currently standing 4% below their peak in August 2022, those entering the housing market can seize this opportunity to secure a property at a more reasonable price.
Rising mortgage rates
While falling house prices may be appealing, prospective buyers must also consider the impact of rising mortgage rates. The Bank of England increasing interest rates due to persistently high inflation has led to recent hikes in mortgage rates.
Compared to a year ago, the average interest rate on a two-year fixed-rate mortgage has risen from 3.25% to 5.49%, while a five-year fixed-rate deal stands at 5.17%, up from 3.37%. These higher mortgage costs may affect the affordability of properties and require careful financial planning.
Market conditions and household finances
Despite the challenges, it is important to acknowledge the resilience of the housing market. Solid labour market conditions and relatively healthy household balance sheets provide a measure of stability. While there may be some dampening of demand and sales due to the recent changes in mortgage costs and availability, a dramatic downturn is not expected.
It is essential for buyers to assess their own financial situation and weigh it against the potential risks and benefits of entering the property market in 2023.
Reduced property sales and market confidence
Recent data* reveals a decline in property sales, with transactions in April down 25% compared to the previous year. The changes in mortgage costs and availability have undoubtedly affected market confidence, potentially leading to a decrease in demand, sales and weaker prices. It is crucial for buyers to be aware of these trends and carefully consider the potential impact on their own property purchase.
To buy or not to buy?
Deciding when to buy a property is a complex decision that depends on various factors. In 2023, falling house prices offer an opportunity for first-time buyers, while rising mortgage rates pose affordability challenges. Market conditions and household finances play a role in determining the overall stability of the housing market.
Potential buyers should thoroughly assess their personal circumstances, financial capacity and risk tolerance before making a decision. While the immediate future may present some uncertainties, taking a well-informed approach will help navigate the pros and cons of buying a property in 2023.