Is Now a Good Time to Buy a House in the UK?

Housing has been one of the hottest topics in UK personal finance over the last few years. Against a backdrop of high inflation and rising interest rates, mortgage rates have reached levels we haven’t seen for about 15 years, making affordability a challenge for both existing homeowners and first-time buyers alike.

However, mortgage rates have fallen from their recent peaks and encouraging signs suggest they may continue to decline going forward. With potential change for the better on the horizon and a optimistic outlook for 2024/2025, does that make now a good time to buy a house here in the UK?

Know your goals

Define clear goals and align them with your financial objectives and risk tolerance.

To set these objectives and decide which investment type is worth your time and budget, consider these key questions:

• Primary residence or investment: Are you primarily looking to own a home to live in, or are you focused on investment opportunities?
• Income or growth: If you’re investing, are you seeking rental income or property value appreciation?
• Passive or active: Do you prefer a hands-off approach or are you willing to manage properties directly?
• Short-term or long-term: Are you looking for quick gains or building wealth over time?
• Risk tolerance: How comfortable are you with market fluctuations?

Finding hidden gems with Alesco

If you’re interested in buying a house as an investment property, Alesco can help you maximise your returns by highlighting exciting opportunities in the most profitable areas. We predominantly focus on key cities in the North of England including Manchester, Liverpool and Newcastle as this region continues to post the strongest market growth.

Interest rates could keep falling

The Bank of England (BoE) base rate is currently 5%, which is still significantly higher than the ultra-low rates triggered by the Great Recession of 2007-2009. In fact, the base rate was below 1% between March 2009 and May 2022. However, high inflation levels brought an end to the cheap mortgage era. The BoE began raising rates in an attempt to control inflation, and the base rate crept up from 0.25% in December 2021 to 5.25% by August 2023, remaining there until the first rate cut was made a year later.

At the time of writing, the average rate for a five-year fixed-rate mortgage is 4.61%, while the current average rate for a two-year fixed-rate mortgage is 4.98%. Mortgages are still far more expensive than they were before the inflation crisis. That said, they are also much cheaper compared to October 2022 (following the infamous ‘mini-Budget’) when rates peaked at 6.51%.

BoE Governor Andrew Bailey has said that interest rates are “now gradually on the path down” which may give prospective homebuyers confidence that mortgage rates will also fall further soon. And as it’s possible to secure a mortgage rate up to six months in advance, they can lock in a deal now based on current rates, but swap to a cheaper deal later if rates do drop.

The cost of living is still a concern

The reason that interest rates have finally fallen is that the BoE is starting to feel confident inflation is under control. Peaking at 11% in October 2022, the latest inflation figures found that the rate was only a fraction above the BoE’s 2% target. This means that although prices are still rising, they aren’t rising as quickly. Plus, wages have been increasing faster than inflation in recent months which means that people should theoretically have more disposable income.

If people aren’t being as tightly squeezed by inflation, they may have greater affordability when it comes to mortgages. However, living costs remain high in many areas. Energy prices, for example, are still much higher compared to pre-Covid levels. Rental costs are also high, which could make it hard for renters to save for the deposit they need to get onto the property ladder.

There are also lingering fears over economic stability. According to data company GfK, consumer confidence has fallen to the lowest level since March 2024, correlating with the negative messages coming from the new Labour government.

Neil Bellamy, consumer insights director at GfK, said: “Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on 30 October.” Ultimately, this fear could put people off committing to something as big as a house purchase until they have more confidence in the state of the economy.

House prices remain high

According to The Halifax House Price Index, house prices in August reached a two-year high when the average cost of a property was £292,505 – a 4.3% increase compared to the previous year. This correlates with the BoE’s decision to cut interest rates in August, suggesting an increase in confidence that could boost demand, and therefore prices. That said, Halifax said that this rise is more reflective of the housing market’s weakness a year ago rather than its strength now.

There are also some regional variations. For example, Office for National Statistics (ONS) figures showed that house prices in London underperformed the rest of the country in July, falling by an annual rate of 0.4% compared to a UK-wide 2.2% annual increase. However, as house prices in London are more expensive than anywhere else in the country, low affordability will likely impact demand. High rental prices and high rental demand also add to the challenges people face when trying to buy a property in the capital.

All this being said, prices are impacted by many variables, so it’s never advisable to try and predict how the housing market will behave when making a purchasing decision. Ultimately, rather than trying to tie the market, prospective buyers should examine their current affordability and consider how they would be impacted if their mortgage costs rose in future.

Finding the best deals

Consulting Alesco can help you secure the best deals if you’re thinking about buying a house now. While their insights and expertise are always useful, this knowledge is particularly valuable in times of uncertainty.

We can access deals that won’t be available to you when searching the mortgage market yourself, and offer expert advice to help you choose the right product for your circumstances.

Whether you’re looking for high-return investment opportunities, you’re growing your buy-to-let portfolio, or you’re beginning your journey as a property investor, we’re on hand to assist. Get in touch with us here.