Rightmove’s monthly house price index shows UK house prices on a clear downward trend. As yet, there is no sign of a crash. The behaviour is more like a slow deflation. This could be good news for homebuyers. Even so, it’s important to be clear about the implications of buying in a falling market. Here is a brief guide to what you need to know.
Be prepared to commit for the very long term
It’s standard practice to advise potential home buyers to hold off purchasing until they are sure they can commit over the long term. A typical guideline is around five years but at least three. In a falling market, however, five years is arguably the absolute minimum commitment. Ideally, you should be looking at 7+ years.
Buying a property is a significant undertaking
There are two main reasons for giving this advice. Firstly, the process of buying property is still very labour-intensive. It therefore carries high transaction costs, especially if you need a mortgage. The longer you stay in a property, the longer you have to amortise those costs.
Secondly, property is a very illiquid asset. A simple property transaction can easily take six weeks to go from offer to completion. A complicated one could take over a year. The longer it takes to complete a sale, the higher the risk of buyers pulling out. If there is a chain of buyers and sellers involved in a transaction then this risk becomes even higher.
The risks of buying in a falling market
If you buy property in a falling market and have to sell up quickly, you may be forced to accept a significant financial loss. Firstly, you’re not going to be able to amortise your initial transaction costs in any meaningful way. Secondly, you’re unlikely to get back what you paid for your property.
Thirdly, you may have to wait much longer to find a buyer, during which time your money will stay tied up in your property. In fact, you may find yourself having to carry two mortgages or one mortgage and rent.
Assess the location very carefully
More specifically, assess the location in the context of what changes will and could happen in your life over 5+ years. In particular, think about your work situation. If anything happened to your current job, how would you go about finding another one?
Fully remote work is still an option for some people. For the time being at least, however, it would probably be safer to stay within feasible commuting distance of an employment hub. This would open up options for hybrid and/or fully on-site work. Neither may be your ideal but they could be useful temporary safeguards.
Also, consider your personal situation. If you have older relatives, their situation could change significantly over the course of 5+ years. If you have younger children, they will definitely change significantly over that time. Are you confident that the area you’ve chosen will still be suitable when these changes happen?
As a final point, think about the area itself. See what trends, if any, you can identify. For example, are any new infrastructure projects planned? If so, what impact could they have?
Be careful of pushing sellers too hard
One advantage of buying in a falling market is that many sellers are likely to be highly motivated to sell. At the same time, buyers should not expect sellers to be throwing themselves at their feet begging for money.
In the UK, falling markets are generally a sign that house prices have become unaffordable for people who want to buy. It does not mean that demand for property evaporates. If, therefore, you make an excessively low offer, you can expect to have it turned down.
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Your home may be repossessed if you do not keep up repayments on your mortgage
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