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Is it a good time to be a First Time Buyer?

  1. 19 November 2021
  2. By Jeremy Greer

One of the biggest worries faced when buying a home is whether it's a good time to do so. This can be especially hard for those buying for the first time.



Lots of people are keen to buy when prices ‘are at their lowest’ and if they doesn’t happen, many first time buyers worry that when they do buy, property prices might fall and they'll end up in negative equity. No wonder it’s so stressful to buy your first home.

In reality, there is much more to buying a home than when the price is ‘right’ and it’s also worth knowing that even professional property market experts struggle to successfully forecast what's going to happen to property prices (and rents).

For example, during the first lockdown of the Covid-19 pandemic in April 2020, prices were predicted to fall by 5-15%. Yet one year on, most price reports showed prices had increased into double digits!

What are the ideal circumstances for buyers?

The best time for a First Time Buyer to buy is generally when property prices are falling, but there's always the possibility that you buy and prices continue to fall, leaving you in negative equity. The ideal time would be when property prices have ‘reached their bottom’. But this is hard to pinpoint.

Another ideal time for First Time Buyers to purchase is just after a recession, when prices have fallen but are starting to rise consistently. Typically you’ll see rises of a few percent to start with month on month and if this happens over a 6-12 month period, it usually means the market has turned. Of course this can’t be guaranteed, but based on price growth following the last two recessions this seems to be the trend.

What does the market look like now for First Time Buyers?

After the Stamp Duty holiday ended, we anticipated that the market would return to normal, and in terms of pricing and growth, it's starting to go that way. However, where First Time Buyers might struggle at the moment is with the lack of stock - there still seems to be a huge appetite to buy, perhaps in line with some companies embracing fully remote working, and post-pandemic people wanting gardens and outdoor space.

First Time Buyers in certain areas might struggle to find something in their price range, or might find there are lots of others in the market able and willing to offer above the asking price. However, this doesn't have to be a problem!

Keep looking, keep building your deposit and if you are struggling, consider some different options. Perhaps you had your heart set on a house, but you might consider a flat? Maybe you were only looking in one area but you're willing to expand your radius? Perhaps there are a couple of 'must have's that are actually 'nice to have's?

Property markets work differently in different areas, so it will really depend on where you want to buy. Have a look at our latest Moving Intelligence report if you'd like to know more about what First Time Buyers are doing across the UK.

When is the best time to buy for First Time Buyers?

Waiting for prices to fall or until the end of a recession may not fit around everyone's personal timeline for when they would like to move. Remember that you don't need to buy at this perfect time - focus instead on buying when a property comes up for sale that suits your personal and financial circumstances.

When it comes to buying your first or any home, there is only really one time when it’s right to buy and that’s based on three key things happening:

1.      Your personal circumstances are settled

This means no recent job changes or losses, changes to your income like going on maternity leave or becoming self employed. These will have an impact on your ability to be approved by a mortgage lender. The right time to buy is when you are settled and stable, with a couple of years of consistent earnings to show for it. Similarly, things like being registered to one address for a long period of time and registered on the electoral register will impact your credit score, and make you look more settled.

2.      Financially you are safe and secure to commit to buying a home

Can you afford to buy right now? Do you have the deposit, and the steady income? Will you be able to afford your mortgage? Do you have large debts you need to pay off? Buying a home when your credit score is bad, or when you've got lots of other outgoings, can stop you getting a good rate on your mortgage, if not stop you buying altogether.

3.      You find the property you want and can afford

Bearing in mind that only 7-8% of properties are available for sale at anyone time, one of the hardest things is finding a property for sale that you can afford and is in an area you like. If you've found something that works for you and you can see yourself living in for at least a few years, go for it.

What if I buy and prices fall?

The big fear First Time Buyers tend to have is what happens if you buy and property prices fall. This is clearly not an ideal situation, but it's not as big a problem as you might think. Many people who bought back in 2006 and 2007 had no idea that property prices were going to plummet by around 20%. However, all that happened for most people who lost property value was they stayed put until the value recovered, which depending on where you lived, took about 5-10 years.

If you're planning in staying in your new home for a good few years, you can worry less about negative equity, as the best way to deal with it is staying put.

It’s also worth remembering that when you buy, you'll be paying back some of the money you owe from the day you purchase. This means you start to ‘buy your house’ back from the lender as long as you are paying off the mortgage, reducing the amount you owe and increasing your equity in the property.

If you weren’t living in the property you own, where else would you live? Would you be still at home with family, living with friends or paying rent to a landlord? It’s worth considering the downsides to not buying. 

If you are worried that prices might fall, speak to your mortgage broker about insurance they can provide if you can’t pay your mortgage due to job loss or getting sick. An alternative worth investigating if you can’t afford to stay in the home is if you can cover the costs of the property by letting.

When you find a property you like, it’s worth speaking to a qualified letting agent to ask if it would be easy to let legally and safely and see how much rent you could earn. Check to see if this would cover your property costs until you were back on your feet again or the property’s price had recovered.

 

Everyone always wants to know if now is the 'right' time to buy (and if you want to know more about what property prices are doing, you can have a look at our House Price Forecast) but the most important thing to consider is: is it the right time for you? If you have the security, the funds and have found a property you love, then we'd say it's definitely the right time!

 

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