Why prospective buyers shouldn’t bet on house prices falling

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Taking your first step onto the property ladder is an important milestone in most people’s lives, but the strong housing market growth in recent years has made this difficult. For many young people, it has been increasingly hard to purchase a home without significant financial help from loved ones.

According to figures from the Office for National Statistics (ONS), the average house price in the UK is now £251,000. Despite the financial shock of the coronavirus pandemic and subsequent lockdowns, there has been an 8.9% growth in prices in the year to April 2021.

This rapid growth, in spite of the global financial downturn, has led some people to believe that the market is a bubble and once it bursts, house prices will fall to a more reasonable level as the market re-asserts itself.

While it’s understandable that people hope for this, you shouldn’t rely on wishful thinking. Read on to find out why you shouldn’t bet on prices falling and what you can do instead.

House prices have grown faster than increases in wages in recent months

One of the biggest problems facing many young people is that while house prices have grown rapidly in recent years, there hasn’t been a corresponding growth in wages. This has made it more difficult to afford a mortgage deposit.

Due to this disparity, a significant portion of people believe that the housing market is in a bubble, and that the growth cannot continue. According to a survey published in Mortgage Introducer, around one-fifth of Brits believe that house prices will fall in 2021.

The logic is very easy to follow – prices will keep growing until they reach a level that’s beyond the ability for most people to buy, and prices will then fall as the market rights itself. However, while potential buyers may be hopeful, this scenario is likely to be overly optimistic.

Supply of houses has been consistently lower than demand in recent years

For a start, one of the biggest determining factors of house price growth is that the demand for homes is greater than the supply, and this looks unlikely to change in the near future.

The main reason for this is that even though there is a dearth of housing stock in the UK, the rate of construction for new homes typically does not match the rate of population growth. Since demand is increasing faster than supply, this correspondingly increases the price of houses.

The pandemic also significantly reduced the construction of new homes in 2020, as the lockdown prevented many construction companies from operating for several months. According to figures from Morningstar, the number of new homes registered to be constructed fell by almost a quarter.

This further reduced the supply of houses on the market, meaning that house prices are likely to be pushed up further, as buyers jostle for the available properties.

The belief that there will also reach a point when prices completely outstrip buyers’ ability to pay also seems somewhat optimistic. Due to rising prices, the government have implemented a number of schemes in recent years to help first-time buyers get into the property market.

One of the main ways that they’re trying to help buyers is with the Lifetime ISA, which was introduced in 2017. Any UK resident between the ages of 18 and 39 can open one of these accounts and you can make contributions into it until your 50th birthday.

If you use a Lifetime ISA to pay for a deposit on a home, the government will top up your contributions by a further 25%. This can provide a valuable boost to your savings when trying to secure a mortgage.

Another way that they are helping buyers is by encouraging lenders to offer loans with a higher loan-to-value (LTV) ratio than usual, such as 95%. This means that buyers can take out a mortgage with a smaller deposit, making it easier to get onto the housing ladder.

If you want to know more about this, read our previous article to find out what a 95% LTV mortgage could mean for you.

With the government supporting the ability of buyers to secure a mortgage, prices are likely to remain high in the near future as people’s buying power is kept artificially high.

Speaking to a mortgage consultant can help you to get onto the property ladder

If you want to take your first step onto the property ladder in the near future, it’s much more sensible to be proactive than to hope that the market changes to suit you. One of the best ways that you can do this is to speak to a professional.

When you work with a mortgage consultant, they can help to increase your chances of securing a loan, as they have a more in-depth knowledge of the underwriting process. This can help them to find a lender who may be more likely to approve your application.

Working with a professional can help you to rest easy, knowing that you’re maximising your chances of securing a mortgage.

Get in touch

If you’re hoping to get onto the property ladder in the near future but you’re struggling to secure a mortgage, get in touch. Email us at office@verve-financial.com or call 0330 320 5048.

Please note:

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

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