An estate agents' "For Sale" sign is pictured outside of a residential property in north London on September 30, 2022. (Photo by ISABEL INFANTES / AFP) (Photo by ISABEL INFANTES/AFP via Getty Images)

Should first-time buyers wait for the real estate market to collapse? Why waiting could cost you thousands

First-time buyers have been urged not to give up plans to buy a home before the property market is expected to fall next year because their costs could end up rising.

It comes as research shows UK property prices are around 30% overvalued, with affordability falling sharply in recent weeks, according to consultancy Oxford Economics.

Credit Suisse analysts have previously predicted that house prices could fall 10-15% next year.

The real estate market has already started to cool, even before taking into account the recent problems encountered in obtaining an affordable mortgage. Figures from mortgage lender Halifax showed average house prices fell 0.1% between August and September.

For first-time buyers, such an event could represent an opportunity they’ve been waiting for: falling real estate prices.

So does it make sense to pause buying in the hope that prices will go down? The answer is no, because gains from lower house prices could be eroded by higher interest rates.

How much can it cost you to wait two years?

A first-time buyer looking to buy a property at around the UK average price of £300,000, with a 5% down payment, could borrow the £285,000 they need over a 2-year period for a 30-year term from a typical rate of 6.24. percent, free of charge. This would require monthly repayments of £1,753.

As recently as September, lenders could have offered a typical rate of 3.96% for the same mortgage. This would require payments of £1,354 for a total cost of £487,313 over the same duration.

If house prices are 10% lower by 2024, as some experts have predicted, that same property could be worth just £270,000. With the same £15,000 deposit, the buyer would have to borrow £255,000 on a 30-year contract at around 8.24%, if mortgage rates rose another 2% during this period.

In this situation, monthly repayments would be £161 higher per month.

Waiting two years would mean that a borrower would pay off their mortgage two years later, meaning they would be mortgage-free for a shorter period of time.

Delaying that decision for two years would also mean the buyer would have to pay rent in the meantime, at an average of £1,159 per month, according to HomeLet’s Rental Index.

But tenants face a more than 20% increase in rental costs over the next five years, according to forecasts by real estate agent Knight Frank.

Landlords and renters also have to contend with the full force of inflation across the economy, with rising costs for everything from energy bills to groceries.

More Silver

It’s hard to time a crash

In previous real estate crashes, such as the one that took place in the early 1990s, real estate prices have not fallen in the same way in all areas. In some desirable parts of the country, price declines were brief and timing the dip was difficult.

Plus, once prices start to drop, only sellers who really need to sell put their homes on the market, so you may find yourself competing for a bargain.

“The drop in demand could open up room for negotiation and cause prices to slow, although this shortage of supply may prevent the market from collapsing,” said David Hollingworth, associate mortgage broker at London & Country.

Spread the love

Leave a Comment

Your email address will not be published. Required fields are marked *