Last updated: Aug 29, 2023

When is the right time to buy?

George York DipPFS
Financial Planner at Mortgages for Doctors

When is the right time to buy?

Knowing when to buy a house can be challenging, especially during a cost-of-living crisis. The recent Bank of England interest rate rise to 5.25% also adds complexity.

This naturally has a knock-on effect when it comes to the housing market. The more expensive it is to get a mortgage, the fewer people will be able to buy, which explains why there’s been so much talk in recent weeks of a housing downturn.

It was estimated that house prices would drop by 5% in 2023, with some predicting an even larger drop. At the moment, the most recent data shows that house price growth is simply slowing down.

However, for many, even a small slow down in house price growth will make getting on the ladder more affordable, making 2023 the year to buy.

Another positive is that some sellers are becoming more realistic and open to negotiation, having to compromise in order to sell their property.

So, when is the right time to buy? Unfortunately, there is no easy answer, as it will depend on a range of factors, including your personal circumstances and financial situation. Let’s take a closer look:

Economic conditions

One of the primary considerations when contemplating buying a home is the current state of the economy. A robust and stable economy often presents favourable conditions for home buyers. During times of economic growth, people have more job security, increased disposable income, and confidence in their financial future. Additionally, a strong economy typically drives housing demand, which can lead to appreciation in property values.

Market trends

The housing market is subject to cycles of boom and bust. Analysing market trends is vital to determine if it is the right time to buy. If, for example, a new housing development is completed, this can reduce the value of properties nearby as there is more competition for buyers. On the other hand, some properties will always demand a high price because they’re in an area where desirable housing is limited.

Interest rates

As mentioned, mortgage interest rates significantly impact the affordability of home ownership. When interest rates are low, borrowing costs are reduced, and monthly mortgage payments become more manageable. Conversely, higher interest rates can make buying a home more expensive, potentially pushing some buyers out of the market or reducing their purchasing power. Keeping an eye on interest rate trends can help you make an informed decision on when to enter the market.

Personal finances

Anyone thinking of buying a home should evaluate their credit scores, debt-to-income ratios, and overall financial health. Lenders use these factors to determine the level of risk and approve mortgage applications. Being financially prepared ensures a smoother and more sustainable home buying process.

Future plans

Consider your future plans before buying a home. Are you planning to stay in the area for an extended period, or do you anticipate relocating for job opportunities or other reasons? Purchasing a home is a long-term commitment, and it's essential to align your plans with your home ownership goals. If you plan to move within a few years, renting might be a more suitable option.

Affordability and housing market stability

Affordability is a crucial factor when determining the right time to buy a home. A general rule of thumb is that your monthly housing costs, including mortgage, taxes, and insurance, should not exceed 25-30% of your monthly income. Analyse your budget carefully to ensure you can comfortably manage home ownership expenses without compromising other essential financial goals.

Moreover, assess the stability of the housing market in your area. A stable market with moderate price appreciation provides a more secure investment. Rapidly escalating property prices might lead to a bubble, which could result in a market correction and potential financial loss for recent buyers.

Deciding whether it’s the right time to buy a home involves a comprehensive evaluation of various economic, personal, and financial factors. While it can be tempting to act based on external factors or emotions, it's crucial to approach this significant decision with a clear understanding of market conditions, interest rates, personal finances, and long-term plans.

Talk to us and we can help you to make a sound and confident decision regarding home ownership.

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