Is Now A Good Time To Invest In Property?
What is happening with mortgage rates in the times of inflation? Should property investors and home buyers wait or act? Korosh Farazad explains.
The answer to this question very much depends on whether you require a mortgage or not.
The cost of living crisis, rising inflation and interest rate hikes are collectively taking their toll on families and individuals across the UK, making it a very difficult time to secure a good mortgage and buy a home. However, for those with cash, it’s not all doom and gloom.
“While it’s a dreary situation for those requiring a mortgage, it's a positive for cash-buyers.”
The UK and countries across Europe have dramatically increased interest rates in order to reduce inflation, making it harder and more costly for businesses and people to borrow money.
The International Monetary Fund economic counsellor, Pierre-Olivier Gourinchas, has said:
“Increasing price pressures remain the most immediate threat to current and future prosperity by squeezing real incomes and undermining macroeconomic stability.”
Obtaining a (good) mortgage within this current climate is difficult. The late Chancellor Kwasi Kwarteng’s mini budget on 23rd September led to approximately 40% of mortgage offers to be recalled due to the uncertainty in the market, and markets are now expecting the interest rates to peak at around 5.25% to 5.5% in 2023. This is very likely to push the average mortgage rates, which already stand close to 6%, even higher.
Advantage for cash-buyers
While it’s a dreary situation for those requiring a mortgage, it's a positive for cash-buyers. The decrease in demand for buying property means a decrease in house prices, providing cash-buyers with a perfect opportunity to snap up good deals and make a chunky return on investment in the future.
Consumers are looking at a 10-15% discount on today’s market value and new homes. As inflation continues to soar, there’s speculation that the rising interest rates could drive the housing market down further, as The IMF recently warned Britain will be facing financial problems well into next year.
With all this mind, if you’re looking to obtain a mortgage but are in no rush, then wait. It is best to hold off until interest rates come back down. In truth, no one is sure how long the interest rates will remain this high, but we can expect they’ll be back at a more palatable level within 12-18 months. Ideally, they will fall to around 2.25% - 3.75%, but it’s worth noting they will not go back to the type of rates we saw during the pandemic.
Nevertheless, if you’re a cash-buyer, now is the time to strike whilst the iron’s hot! Capitalise on the lower house prices and bank a great deal. Take the opportunity to buy a property that may usually be out of your budget or is selling for less than the usual standard for the area, and sit on the investment until the market picks up again.
Korosh Farazad - Founder of & Chairman of Farazad Group Ltd
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