Is Buying Property Now The Savvy Way Forward?

by | Wednesday 5th Oct 2022 | Mortgage Insights

Is buying property now financially savvy?

Is buying property now financially savvy? (Source: www.thelawsuperstore.co.uk)

It seems that the only thing the newspapers are talking about right now is how bad the state of the country is economically. Every headline seems to say something about incompetent government ministers, ill-judged tax reductions, the soaring cost of living, and the folk devil The Bank of England (not true by the way). So, as a mortgage and protection advisor, it seems only right that we address the question on a lot of people’s lips. “Is buying property now the savvy way forward?”.

Cons Of Buying Property In The Current Market

So let’s start by the way that the media are currently portraying the financial state of Britian, not in a particularly great light. Here are some of the potential cons of buying property right now:

  • Higher interest rates than we have seen for a number of years

Unfortunately, due to lots of factors, mortgage interest rates are creeping…well sprinting up and up on literally a daily basis at the moment. Only 10 months ago in December 2021, the average 2-year fixed mortgage rate was 2.34% with many lenders offering much lower rates. Now in October 2022, the average 2-year fixed mortgage rate is 5.75%. A big jump up in less than a year.

Interest rates have risen as lenders have adapted the interest they charge in line with the Bank of England’s base rate, which was risen in an attempt to stop people from spending and lower inflation. As inflation is still increasing, the bank will continue raising the base rate until it is under control. So, that means that lenders will keep on raising interest rates until the BOE stops. If you purchase a property now you will most likely have an interest rate between 5% and 6% and if you wait any longer, it could be 7% or 8%. Compared to buying at the same time last year where you would have been able to secure a loan between 1% and 3% depending on the lender and your personal circumstances.

To put this into perspective, if you borrowed £200,000 in October 2021 on an interest rate of 2.34% over 30 years, you would have paid £774 a month. Doing exactly the same thing today at an average interest rate of £1,167 a month. An almost £400 a month difference or £4,716 extra a year. These are of course average figures and our job as a mortgage advisor would be to find you the best, most competitive, and financially viable option for your circumstances.

  • Higher cost of running a property

Another unfortunate fallout of the economic crisis is a significant rise in the cost of utility bills such as gas, electric, and water. Supposedly as a result of the war in Ukraine and Russian sanctions, fuel normally imported from Russian is more expensive to access and that means bills have gone up substantially. So much so that pubs and restaurants normally making a nice profit are having to close early or completely shut due to being unable to afford to keep the electricity running.

Everyone’s energy consumption is different and different properties are more energy efficient than others but across the board people will see an increase in their energy bills. When buying a property, your mortgage advisor will go through your finances with you and make sure that your mortgage payments and your outgoings are all manageable for you.

  • Potential for reduction in value?

There are lots of theories about where the property market will go, but no one really knows what will happen. Although some economists have a good idea. Property prices have been inflated for a long time and they are currently at an all-time high with the average property price in the UK outside of London being £292,000 and £543,000 in London. So, logically, what goes up must come down and with property, prices will eventually get too high for anyone to afford and will need to be reduced. We predict that within the next 12-month, property prices will drop however how much they drop is still to be seen.

Ok, so now that we have got the doom and gloom hypotheticals out of the way, let’s have a look at the more positive side of purchasing a property now. Investing in property has and will essentially always be a good investment of your money, unless you are really unlucky and buy a property that is completely unliveable! Here are some of the perks of buying now:

  • Recent changes to stamp duty tax and buying property

Aside from the disastrous other tax cuts that the Chancellor of the Exchequer Kwasi Kwarteng announced in his mini-budget late last month, he did also announce a reduction to stamp duty for most buyers. Stamp duty is a tax that the government imposes on property purchases. For anyone purchasing a property, they will be potentially liable to paying stamp duty.

The general rule is that first time buyers are exempt from stamp duty tax up until a certain purchase price, home movers will pay a standard stamp duty tax on properties purchased above a lower threshold. People buying an additional property such as buying a 2nd home or a buy to let investor will pay standard stamp duty + and extra 3% on top.

In the mini budget, Mr Kwarteng announced that the threshold on stamp duty would be raised across the board for all buyers meaning that when you pay stamp duty and the amount of stamp duty you pay will change and will save a lot of buyers money.

  • Still better than renting!

Renting is so expensive! Especially in cities like London and Manchester where people are forced to pay top dollar for breathing space. And, with the rising costs of living and energy bills, a lot of landlords are being forced to increase their tenants’ rents just to make ends meet. The average monthly rent in London is currently £1,800 and in Manchester is £932 a month both excluding bills.

As a tenant paying your landlord monthly rent, you are not actually gaining anything other than a place to live. You are paying your landlord’s mortgage for them and losing out on thousands a year. At least with a mortgage, no matter how high the interest rate gets, you are still investing in your own property and putting your money back in to you own home.

  • Property will always be valuable, no matter how the market goes.

Yes, we did mention above that there was a risk of your property going down in value. Which is true. However, if you aren’t planning on selling immediately after purchasing, there isn’t really much to worry about as property will always be valuable. There is a struggle for property in the UK at the moment and will likely continue as fewer houses are being built and more people are fighting to purchase a property.

Despite property prices possibly decreasing, the demand for property will still be there. Unless your home has some catastrophic issues and is immensely devalued, you will still make a profit from your investment. The longer you keep your property for, the more mortgage you will have paid off and the more valuable your home will be. Keeping your property for longer and making updates and home improvements over this time will also add a significant amount of valuer on to your property.

  • Good source of income if you decide to become a landlord.

Not the case for everyone looking to enter the property market of course, but if you are lucky enough to be in the position to be able to potentially purchase a property to let out or you have previously bought a home to live in but now want to rent it out, a buy to let investment is still a great source fo secondary or primary income.

Renting is still very popular, especially in bigger cities, and buying a property to let out to people as a source of income is a good move if you can do it. A steady flow on rental income every month can really make a difference to your financial stability in a struggling economy.

So, if you or anyone you know is considering purchasing a property but aren’t sure if buying property now us a good move financially, please give our advisor team a call today to see how we can help.

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