Buyer's Guide

Should

you buy in 2023?

Deciding to buy a property is one of life’s biggest commitments, that you may considering in the next year. Whether it is wise to, of course, is highly dependent on your situation, property ambitions and future plans. But whatever your circumstances are, the wider market will have an effect on your decisions, and their results. So, let’s take a look at what might happen in the coming year and how it might affect you.

While the housing market always holds a level of uncertainty, it seems that experts can broadly agree on one thing in 2023: prices will go down, but it won’t be the crash some people imagined in the wake of Truss and Kwarteng’s mini budget in September 2022. In fact, prices have already dropped, with Rightmove’s last House Price Index for 2022 reporting the average price of property coming to market dropping by 2.1% (-£7,862). According to its data, Rightmove suspects there are a lot of buyer’s who are primed to buy, but are waiting to see if mortgage prices will continue to level out, or even drop further. Tim Bannister, Rightmove’s Director of Property Science says “our data suggests that there are many ready-to-go movers out there waiting for what they feel to be the right time to enter the market in 2023. We’d usually see a jump in home-mover activity in January, but it takes a while at the start of the year for any significant price changes to feed through, so we’ll be waiting for a potential bounce back in prices in February, which will be a very important leading indicator for the spring moving season.” The price of mortgages will be a deciding factor for many potential buyers. Many commentators have long held that properties are currently priced in an unsustainable way. To re-energise the market, a reduction in prices is required. But this will only be beneficial to current homeowners looking to upgrade. Many first-time buyers may see their opportunity to buy disappear in the face of increased and potentially unsustainable mortgages.

Rates on new fixed-rate deals were climbing throughout last year, as the Bank of England put up interest rates to fight inflation. They peaked at 6.65% after the mini budget. Thankfully, Hunt’s new Autumn Statement calmed the market and mortgage rates started to slowly drop. Rachel Springall, a finance expert at moneyexpert.co.uk told The Guardian, “borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement. As the average five-year fixed mortgage rate falls below 6% for the first time in seven weeks, borrowers who paused their home ownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.” It’s also worth remembering that you can review mortgage deals as early as six months in advance of them coming to an end, so assessing what options are available now is a sensible move for anyone who may be remortgaging or looking to upgrade.

The Office for Budget Responsibility (OBR) said at the end of last year that UK house prices will fall for the next two years before starting to rise again. It forecasts that there will still be an average increase in property prices in 2022 of 10.7% despite the recent slowdown. That will be followed by two years of falls, with house prices down by 1.2% next year, and 5.7% in 2024. Then the OBR suggests prices could rise again at a rate slightly faster than people's incomes - up by 1.2% in 2025, 3% in 2026 and 3.5% in 2027. But it caveats all these statements with the fact there is significant uncertainty around forecasts due to the volatility of the market.

We also need to factor in the rising cost of living. Millions of people will be affected by this, but it’s particularly difficult for potential first time buyers as they see their budget squeezed. This affects their ability to save deposits and other costs. One definite thing in favour of buying now rather than later is the Chancellor’s decision to rescind the stamp duty cuts from March 2025.

So, to return to our question: should you buy in 2023? The answer depends on your situation.

Prices are dropping so, if you’re in a secure financial position and have a mortgage locked that you can afford, it is as good an opportunity as any. If your finances are extremely tight, with little or no wiggle room, waiting for the market to level out is also another option.

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Well, the last quarter of 2022 was certainly not normal!

JAMES MUNCASTER Chagnon Financial

It has been a year of tumult in the property market, and Q4 was no different. Following the minibudget, fixed rate mortgages spiked as banks priced in a 6% base rate. The mortgage industry was seeing daily rate increases and lots of concerned clients. Fortunately, we are seeing things settle.

Mortgage lenders are continuing to reduce their fixed rate mortgages, and the margin applied to tracker rates is getting smaller. In the early part of 2023 the tracker versus fixed debate will still be relevant, but as we move further into the year the fixed rate market will come back. Over the past few years, a 5-year fixed rate has been common, almost default. But there is still a conversation to have on shorter term fixed rates when looking at the market conditions. As inflation starts to come down, the Bank of England will look at the Base Rate. It is doubtful we will see instant impacts, but fixed rate mortgages tend to be priced with the future in mind. In the start of 2023, I think any rate in the low 4’s will be good value.

in 2023, the borrowing capacity will also improve. In the West/ South West London market, I do find a need to “top slice” (using income and rent), so I expect this to be a part of the market that will improve more. Rates on Buyto-Let mortgages are now very similar in price to Residential/ Owner Occupier mortgages. This, I think, reflects the reduced demand in the Buy-to-Let sector. I expect to see more banks come into the Ltd Company Buy-to.Let market as more new investors look at that as the better way to build a portfolio.

Looking forward to 2023, there is a lot of chatter in the media of higher mortgage rates. This is true. However, the rates of the last few years were always unsustainable, and we are now returning to a normal rate environment from the artificial highs of the year end. This particularly evident, as I have advised tracker rate mortgages to clients as being much better priced, even as base rates seem to be increasing.

In terms of lender appetite, there is still plenty of liquidity in the system, so the banks will need to find ways to encourage clients to borrow in a higher rate market. Income multiples have been hit as rates have increased, but these will start to improve as fixed rates get better. Banks will need to review and recalibrate their “stress” tests of mortgages now that rates are higher. In London, particularly West and South West London, higher borrowing multiples are needed.

The investment side of the mortgage market also saw similar changes. Landlords have been used to lower levels of borrowing against rental as property prices outpaced rental values. As rental values surge

The mortgage market is in a very fluid situation and will continue to be in 2023. Solid advice and good lines of communication are key as we observe changes to rate, policy and borrowing .

I think that 2023 will be better than anticipated and I look forward to advising new and existing clients as we get used to the new normal.

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