Falling UK House Prices: What To Do If You're Trying To Buy Now

Everyone's talking about house prices dropping – so where does that leave you if you're looking? We asked a property expert.
Is now a good time to buy a house – or should we wait?
Anadolu Agency via Getty Images
Is now a good time to buy a house – or should we wait?

You’ve probably heard the news: house prices are dropping. And while that’s a scary headline for homeowners, first-time buyers might be looking at it with some interest as their chance to get on the property ladder.

But wait! The Bank of England has announced the largest increase in interest rates in the UK for 33 years, taking interest from 2.25% to 3%. And one of the biggest things this affects? Mortgages.

As Money Saving Expert Martin Lewis explained in his recent newsletter, “for each one percentage point your mortgage rate increases, expect to pay roughly £50 more a month (£600/year) per £100,000 of mortgage debt.”

So houses may be more affordable, but mortgages less... confusing at all? I’ve got skin in the game here – my partner and I are currently hoping to buy a home together. In fact, after weeks of viewings, we finally had an offer accepted on a place a few months ago, only the chain has since stalled, so we’re back tentatively looking again – just to have some options.

But is now a good time to buy a house – or should we wait it out? While there might be savings on the purchase price, will we be paying out more on the mortgage in the longterm? I put all my questions to Kellie Steed, mortgage expert from money.co.uk, to see if she could ease some of the confusion.

Are house prices really set to drop and if so, for how long and by how much?

The housing market has undoubtedly been impacted by the disruption following the mini-budget, and the consequential hike in interest rates, Steed says.

“The turmoil has seen borrowing costs stretched further during a time when households are already under significant financial pressure. As a result of increased mortgage rates, house prices are likely to fall over the coming year, with estimations of up to 10%,” she tells HuffPost UK.

So is it a buyer’s or seller’s market right now?

After two years of record-breaking house prices, the market is beginning to finally see a drop.

“Despite these falls, the housing market is still undesirable for buyers due to increasing interest rates. Yet, sellers are likely to want to sell their properties before prices decrease even further – so neither team is ‘winning’,” says Steed.

“Ultimately, although it is currently not great news for buyers or sellers, buyers may benefit more in the long run, once prices fall further. With buyers unable to borrow as much, their ‘buying power’ will be reduced, which will inevitably lead to a further drop in the market.”

We’re house-hunting. Is now a good time or should we wait?

With so much uncertainty in the housing market, it’s difficult to work out the best time to jump in.

“With house prices expected to fall, it is understandable that first-time buyers may be considering this time to purchase a house,” Steed says. “Nevertheless, considerable interest rates will mean that mortgages are typically less affordable, thereby significantly limiting purchase options.”

Whether or not it’s a good time to buy depends on your personal situation, she says – if you are in a financial position to purchase a property affordably now, it could be the time to invest. But take a good look at your circumstances: that includes how much deposit you have and the time you intend to stay in the property, as this could impact how affordable the mortgage is, long-term.

“Consider what you would do if interest rates increased further to 5% or even 7% higher than today,” she says. “Could you afford to pay the mortgage?”

We already have an offer on a house, but, if prices are falling, will we be paying over the odds for it?

As Steed explains, any mortgage offer is provided based on the lender being happy with the property you’re buying at the price currently being charged.

“They must be kept updated if there are to be any changes in the value of the property, as well as your own financial circumstances,” she advises. “If you are concerned about paying over the odds for a house, be sure to speak with the seller; they may be prepared to lower the house price if the market has seen a decline.”

She adds: “If you don’t update your lender about any price decrease, the property will essentially cost you less, however, you will still be borrowing the same agreed sum, thereby impacting your agreement with the lender.”

How much more expensive are mortgages likely to get?

Interest rates are predicted by some commentators to rise even further. Despite these predictions, no one can ever be certain if this will ring true or how this will affect personal circumstances, says Steed.

“Although fixing your mortgage is a desirable option to ease any uncertainty and ensure financial stability, the most useful option is to talk to a mortgage broker to truly consider your options,” she advises.

“If you need certainty, then fixing your mortgage may be a good option to ease these worries. However, if possible, it could be beneficial to hold off, or fix for a shorter period, to avoid paying more than you need to on a fixed-rate mortgage if rates do not continue to rise.”

This is backed by Connor Campbell, personal finance expert from NerdWallet, who urges homeowners who already have a mortgage to speak to their lenders about this instead of avoiding awkward conversations.

“People tend to think more long term when interest rates are high, and short term when they’re low. But this isn’t always the best idea for everyone,” he previously HuffPost UK.

“If you’re worried, and on a fixed rate that ends within the six months to a year, it could be wise to speak to a mortgage broker to find out what options are available to you.”

If you’re on a variable or tracker mortgage, the same applies, he says, so don’t bury your head in the sand.

And how will this affect the rental market for landlords ... and tenants?

The answer is both will be impacted – they’re interrelated. As landlords up and down the country struggle with higher mortgage rates over the next year or two, renters could find it more difficult to find properties – and within their budget.

That’s in a year when rental rates were already increasing, amid the ongoing cost of living crisis, outside of London by more than 10% annually for the first time ever, while increases in the capital were the largest of any region on record.

Rightmove says there are three times more tenants than there are available rental properties in the “most competitive rental market” it has ever recorded. And the situation is not set to ease anytime soon.

“Typically, buy-to-let landlords use interest-only mortgages to help generate greater cash flow,” Steed explains. “However, soaring borrowing costs, insurance premiums, and maintenance fees are all thought to be putting prospective and current landlords alike off the buy-to-let market.

The restriction of financial cost relief over the past few years means increased interest rates will be felt directly by landlords. “Continuously rising rates could force landlords to either sell up or increase rents, in order to stand a chance of turning over a profit,” she says.

“Some property owners have already taken action by passing on the higher borrowing costs to their tenants, increasing rental prices to combat falling profit margins. Yet, this is likely to leave many renters in financial difficulties and distress due to the overall cost of living pressures across the country.”