Is it a bad time to buy a first home?
With the housing market slowing sharply, should first-time buyers and upsizers stand back and wait, asks Sam Meadows
Property prices are expected to slow to near-zero in 2018 nationally with some regions expected to experience falls. Rightmove, the online property portal, yesterday predicted annual price growth of just 1pc across Britain with falls in London and the commuter belt of 2pc. So is now really the right time to buy a first property or move up the housing ladder?
Last month’s Budget gave firsttimers some fresh impetus to take the plunge: stamp duty was scrapped entirely on first purchases priced up to £300,000. Those paying up to £500,000 could also benefit, but not by a full waiver.
Ultra-low mortgage rates are another incentive. The most popular mortgage deals – which typically fix the borrower’s rate for the first two years – remain near all-time lows.
Like Rightmove, most forecasters suggest the market is subdued and slowing, with total transactions and lending at approximately half the levels seen before the financial crisis.
First-time buyers, however, are a bright spot, being one area where transactions are picking up fast.
In 2016, 312,500 new mortgages were issued to first-time buyers – an incredible 69pc above the level seen in 2008.
Property commentators, usually reliably upbeat, are now urging caution.
David Hollingworth, mortgage analyst with national broker London & Country, said: “There’s always a risk that prices will go down.
“That’s why it’s important not to feel panicked into buying something that might not suit you. If you’re desperate to buy, and might not want to stay long in the property you are considering, it might be worth waiting.”
Henry Pryor, a property consultant for wealthy buyers and investors, goes further. He believes a “cultural fixation” with home ownership has set a trap that could snare a cohort of buyers in today’s market. He warned that now could be the “worst time in a generation” to be buying your first home.
“Since the Second World War we have become indoctrinated into the idea that we must own our home,” he said. “It’s a scary time to be a first-time buyer.
“Your instincts will be aligned with your parents’ and grandparents’ who will be cheering you along, saying ‘house prices only go up, this is how me and your father started’. But the reality is that house prices are not a one-way bet.”
He added: “A mortgage is like student debt, with the major exception that it will never be forgiven. If student debt scared you when you were setting out as an undergraduate, a mortgage should terrify you now.”
The dangers are twofold. First-time buyers risk owning a property which, if it falls in value, could mean they struggle to refinance on to the best available mortgage rates, landing them with higher monthly payments in future.
For example a property for the national average first-time buyer price of £208,000 – putting down a 10pc deposit and borrowing the rest at a best-buy rate of 1.89pc would cost £871 per month.
But if the property loses value the new owner could find themselves short of the necessary equity to refinance when their fixed deal comes to an end. They could then end up locked into a “standard” rate typically nearer 5pc, with monthly payments climbing to £1,215.
The other danger is that the first property purchased is not adequate when owners wish to grow their family or relocate for work.
Dan Hegarty, of Habito, the online brokers, said getting on the ladder is currently “pretty brutal”.
He calls for an “expansion of Help to Buy and shared ownership” among other measures as a way of lifting some of the risk off first-time buyers’ shoulders.
‘I’ve faced up to the prospect of a fall in price’
Digital designer Corinne Hitching, 35, bought her flat in Hackney, east London, in July for £380,000, having knocked £35,000 off the original asking price. Her Natwest mortgage charges a fixed rate of 2.47pc for five years.
She said that as she intends to keep the property for the long term she is not concerned about short-term depreciation.
“I don’t have a pension so I figured this could be it,” she said.
“I enjoy travelling and I could rent this type of property out if I ever wanted to go away for a long time. The rental market is still strong.”
She is philosophical about the possibility of negative equity – which is where the mortgage exceeds the value of the property.
She explained: “You never know what’s going to happen, but I think if I did intend to sell in the next five years I could still find a buyer.”
‘We’re buying for the security’
Hirra Adeogun, 27, and her husband Paul, 33, bought their first home in east London around a year ago.
The pair used shared ownership to buy a 25pc share in the flat for £110,000, putting down an £11,000 deposit.
Their monthly mortgage costs with Leeds Building Society are £515, while they must pay £756 in rent on the share they don’t own.
Mrs Adeogun, who works for a charity, said they understood the risks of buying, but had been yearning for the security that ownership gives above renting.
“I have rented pretty much all my life,” she said. “Growing up we were uprooted every couple of years.
“We are thinking of starting a family in the next couple of years so we just wanted to lay down some roots.”
The couple were initially rejected when they applied for a mortgage with no reason given as to why. Their broker, Habito, looked into their situation and discovered a case of mistaken identity. Mr Adeogun and his father share a name and that had led to the rejection.
Mrs Adeogun said: “It was a stressful couple of weeks. You get your hopes up and it all seems like it will come crashing down.”
‘I know the risks, but I wanted a place of my own’
Juwon Layiwola works at a large London investment bank and is well aware of the risks of borrowing to buy any asset. But he said the appeal of owning property was difficult to resist.
He bought a share of a flat for around £110,000 with a two-year fixed rate mortgage of 1.97pc. This makes his monthly mortgage cost £318, while the rental portion of the shared ownership property is £775.
His mortgage will revert to a standard variable rate of around 5pc at the end of 2018.
He said: “I was living with my family and wanted to get out.
“You don’t know if interest rates will go up or down; you don’t know if the housing market will collapse – and you don’t know if banks’ lending criteria will completely change. Ask me again next year if it was the right thing to do – but it’s simply not worth stressing about right now.”
‘Your instincts will be aligned with your parents’ – who tell you prices only ever go up’