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A Time to Buy
Words Krystle Sarkodie & Louise Gyambibi
ShutterstockIf any industry has been affected by COVID-19 it has been the housing industry. You may be wondering when the most appropriate time to buy is and what you should be looking out for exactly. Not to worry! Senior Property Manager, Krystle Sarkodie and Mortgage Case Worker, Louise Gyambibi share with us the pros and cons in the housing market and key information that will put your mind at ease.
A time to buy? The best way to answer this question is by first detailing the state of the housing market as understanding this will allow our readers to determine whether or not it is based on their personal circumstance.
This could potentially be the best time for you to enter the housing market as interest rates are low, house prices are predicted to fall and the market could be seen to favour first time buyers. On the other side of things, there has never been this much uncertainty in the housing market. Many banks have tightened their lending criteria and have pulled higher loans to value products from the market.
Pros
Lower Interest Rates
According to Forbes, mortgage rates have hit an all time low for the third time this year, meaning it has never been cheaper to borrow money from the bank. The general rule of thumb is that when interest rates are lowered, house prices increase as mortgage payments become more affordable resulting in an increase in demand. Thanks to the uncertainty of COVID-19, house prices are seemingly decreasing which means that potential buyers can benefit from the best of both worlds.
Reduction in House Prices
Although it is still too soon to predict exactly how much house prices will be affected, it is almost certain that there will be some sort of fall. Estate agent Knight Frank says prices may have dropped by 5% since lockdown which also means that if you have already had your eye on a property, there is now more scope to negotiate on the purchase price.
First Time Buyer Perks
It is no secret that there was a surge in house listings as soon as the lockdown rules were relaxed. Rightmove also reported its busiest day on record on Wednesday, 27th May, with more than six million visits to its listings. With people wanting to make up for the lost time caused by the lockdown, prospective sellers will try to avoid chain purchases as that often causes delays of its own. This means that first-time buyers will look more favourable as their purchases will not depend on a sale of another property.
Cons
Tighter Criteria
Naturally, banks are trying to reduce their level of risky lending at times like this and many high street lenders have pulled their rates for loan to values higher than 80%. Shared ownership and Help to Buy products are amongst rates that have been pulled. Some subprime lenders have even stopped taking on new applications until there is more stability meaning that those with a less attractive credit history will find it even more difficult to obtain a mortgage. Additionally, if your income has been affected by COVID-19, your mortgage affordability will have to be reassessed taking into consideration the reduced income making it increasingly difficult to obtain a mortgage.
Market Uncertainty
Many people's income has been affected in some form by COVID-19 and as a response to this we may find that prospective sellers choose to hold off on selling due to market uncertainties. Similar to the 2007 recessions aftermath, people may wait on a more stabilized market to make sure that they are selling their property for its correct value. Based on this one could argue that there may be a shift in the caliber of house available, both in quality and geographical area.
If your current situation means that perhaps it is better to wait a little longer to buy, we’ve also got you covered with an overview of the renters market at the moment.
With an estimated 450,000 sales stalled due to the COVID-19 pandemic in England, it has really been an unexpected season for buyers, sellers and agents but now the market has reopened many buyers are facing a new challenge; Knight Frank has predicted a 38% fall in transactions across the UK, which has been a decline of 526,000 since the start of the lockdown.
As the housing market has just reopened after almost 12 weeks of non-movement, there is now an influx of new renters. This new genre of renters is people whose circumstances have changed drastically due to the pandemic meaning that they can no longer buy a property or they are even having to now downgrade to something smaller due to a drop in finances. The rental market is fierce right now, and you need to ensure you keep your eye out for the right deal; here are some of my predictions post COVID-19.
1. There will be an increase in HMO licenses – this is a license which allows you to rent your property to more than three people who are not from the same household but share facilities like kitchen and bathroom. This will allow a landlord to rent out multiple rooms increasing their revenue but also creates a sharing economy for renters who want to keep their expenditures low and manage their risk.
2. Increase in renters as many potential buyers no longer meet the criteria of their mortgage lenders due to being on furlough; several mortgage lenders are now reassessing their buyers based on their new furlough salary, in addition to this the extension of the furlough scheme does put a dampener on those who were hoping to wait a few months then buy. The competition for renting will increase as those who are now no longer eligible to buy based on the new criteria, will have to rent for longer as they build their finances.
3. As a renter there is more competition now for properties, as the market has been closed with no viewings held, there is a long list of properties waiting to be viewed and secured. Viewings are now being held by agents across England with social distancing measures in place but many estate agents are opting for the initial viewings to be virtual in order to keep staff safe.