How to buy a property today

Harvey Jones 24 June 2021

Harvey Jones has the lowdown on how to manage your property hunt when prices keep going up and up

At the height of the pandemic many people assumed house prices would crash but instead they have done the opposite and gone through the roof. Prices have been growing by double digits amid widespread reports of bidding wars, putting pressure on new buyers to act quickly.

The average home is now worth nearly £262,000, up an incredible £22,000 in a year, according to Halifax. Today’s buyers will understandably be wary of paying over the odds or borrowing too much, in case today's sky-rocketing prices come crashing back down to earth. You have to be brave to buy in today's market, but it can be done.

What’s driving prices?

Increasing house prices

When Chancellor Rishi Sunak unveiled his stamp duty holiday in July 2020, he thought he was saving the market from meltdown. Instead, he was throwing fuel onto the fire. After the first lockdown ended and viewings resumed, buyers rushed to snap up a saving worth a maximum £15,000 on the purchase price.

That wasn't the only factor driving prices higher. There was also the "race for space”, as people tired of being locked down in cramped properties targeted bigger homes with gardens. The Bank of England's move to cut interest rates to 0.1% made mortgages cheaper than ever, adding to demand.

The government added further fuel with house buying subsidies such as Help to Buy and the new mortgage guarantee scheme, which encourages lenders to offer first time buyers with 5 per cent deposits.

Where do we go next?

Paper houses under a magnifying glass

Although few experts predict a crash, recent price growth is likely to slow as the rush to move home calms down. The economy may be reopening but millions still fear for their jobs, and could struggle when the furlough scheme ends in September. That may keep a lid on prices, especially if many are forced to sell.

An even bigger worry is that inflation will return, as global stimulus and supply chain bottlenecks push up prices. If that forces the Bank of England to hike interest rates, mortgage costs will follow and demand may fall.

If prices drop then recent buyers will find themselves in negative equity, where their loan is worth more than their property. So how should today’s buyers respond?

1.Don’t be rushed!

Property transactions now take months to complete, so you’ve missed the stamp duty tax break and can afford to take things easy. Don't feel pressured into buying an inferior property, it could prove hard to sell when things are calmer. If you’re not sure, then walk away. You will find another property, if you give it time.

2. Make sure you can afford it

Factor in all the costs in buying a property, including stamp duty, mortgage arrangement fees, and the costs of doing it up. If you are stretching yourself, opt for a fixed-rate mortgage, as protection against future rate rises.

3. Trust your instincts

If you have found the home of your dreams, then go for it. Negative equity is only a worry if you have to sell for any reason. Otherwise you can sit tight and wait for prices to recover. They always do, if you give them time.

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