18 Things You Need to Know About Buying a Home in 2023

House prices are expected to fall sharply – but read this before making your offer

Stubbornly high inflation and its impact on the mortgage market have led to widespread forecasts of falling house prices this year. However, before jumping into the market, it’s important to understand the implications for buyers and how to secure the best price for your new home.

Experts believe that the cost-of-living squeeze, combined with existing affordability constraints, will suppress demand and keep prices in check. According to Tom Bill, head of UK residential research at Knight Frank, “UK house prices will come under growing pressure as mortgage rates rise, and we expect a 10% decline by the end of next year.”

Lender Nationwide has already reported a 4% drop in house prices, which, when adjusted for inflation, represents a significant 13% plunge, as calculated by Capital Economics. However, it’s worth noting that these price decreases are occurring from a high point. In fact, figures from Halifax at the end of 2022 showed that the value of an average UK home was £46,000 higher than in March 2020. This means that even if prices drop by 10%, they will still be on par with where they were a year or 18 months ago.

Tom Bill also suggests that these price drops may be temporary. He explains, “When stability returns to the mortgage market, we think demand will prove more resilient than expected, given the cushioning effect of strong wage growth, record levels of housing equity, amassed lockdown savings, the availability of longer mortgage terms, forbearance from lenders, and the popularity of fixed deals in recent years.”

One crucial factor to monitor is the gap between asking prices and agreed sale prices. Richard Donnell of Zoopla notes that “the gap between asking and agreed sale prices widened in the last three months of 2022 to 3%, which is in line with the pre-pandemic period. If this measure goes below 5%, it’s a sign that prices will fall more quickly.”

Starting the Search

To begin your property search, it’s essential to register both online and in person. Registering on major property portals like Rightmove and Zoopla is a given, but don’t stop there. Visit local estate agents in your desired search area and establish a rapport with them. “Be in regular contact,” advises buying agent Jess Simpson, who runs her own firm. “Show empathy towards them, and avoid giving agents a hard time, or you’ll find yourself at the bottom of their priority list.”

First-Time Buyers

Mortgages are currently at their highest rates since 2008, making affordability more crucial than ever. Average rates on two-year fixed-rate mortgages were 6.26% as of June 27, according to Moneyfacts. To protect yourself from volatile interest rates, Mark Harris of SPF Private Clients, a mortgage broker, suggests opting for a fixed-rate mortgage. He explains, “Mortgage deals can be booked up to six months before you need them. If rates fall by the time you’re ready to take out the mortgage, you can always choose another product.”

Saving for a Deposit

First-time buyers aged between 18 and 39 can take advantage of the government’s Lifetime ISA (Individual Savings Account) to receive up to £32,000. This scheme, introduced in 2017, allows savers to contribute up to £4,000 annually, either as a lump sum or ad hoc transfers. The government adds a 25% bonus if the money is used towards a first home or retirement, but the ISA must be open for at least 12 months to receive the bonus.

What about Help to Buy?

Unfortunately, it’s too late to take advantage of the Help to Buy scheme if you’re a first-time buyer. The scheme ended on 31st March 2023, and no new applications are being accepted. However, if you have already reserved a home through the scheme before the deadline, you still have until 31st May 2023 to complete your purchase.

Consider Shared Ownership

Shared Ownership is an alternative option for first-time buyers or those with limited budgets. This scheme allows you to purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining portion. Over time, you can increase your share through a process called “staircasing.” Keep in mind that shared ownership properties may have certain eligibility criteria, so it’s important to research and understand the requirements.

Bidding Wars and Negotiations

In a competitive market, bidding wars can be common. It’s crucial to set a budget and stick to it. Don’t let emotions drive you to overspend. Conduct thorough research on the property and the local market to determine its fair value. When negotiating, consider factors like the property’s condition, location, and comparable sales in the area. Remember, there’s always the option to walk away if the price exceeds your budget or if the deal doesn’t meet your requirements.

Solicitors and Surveys

Hiring a solicitor is a crucial step in the home-buying process. They will handle the legal aspects, such as reviewing contracts, conducting searches, and handling the transfer of ownership. It’s essential to choose a solicitor with experience in property transactions.

Getting a survey done on the property is also highly recommended. A surveyor will assess the condition of the property and identify any potential issues or hidden costs. This information can help you make an informed decision and negotiate repairs or price adjustments if needed.

Consider Additional Costs

When budgeting for your new home, it’s important to consider additional costs beyond the purchase price. These may include stamp duty (tax on property transactions), solicitor fees, survey costs, mortgage arrangement fees, insurance, moving expenses, and potential renovation or furnishing costs. Be sure to account for these expenses to avoid any surprises.

Finalising the Purchase

Once your offer has been accepted and all necessary checks and paperwork are completed, you can proceed to exchange contracts and complete the purchase. This is when you’ll typically pay the deposit, which is usually 5-10% of the property’s purchase price. After exchanging contracts, you are legally bound to complete the transaction. On the completion day, the remaining balance is paid, and you receive the keys to your new home.

Remember, buying a home is a significant financial commitment, so take your time, do your research, and seek professional advice when needed. Good luck with your home-buying journey in 2023!