We are entering New Year with the economy in turmoil. What does that mean for buying property in 2023?
This guide outlines the areas to look out for and 5 tips to make your property buying process smooth and stress free.
Let’s get stuck in.
The Current Property Market
Before you commit to buying property in 2023, you should look at the current property market and the wider economy. Both are going to have a substantial impact on your property purchase and mortgage (if you’re using one).
The UK property market has been growing over the last decade with property prices rising. Currently we are in what’s known as a ‘contraction’ phase.
Contrary to popular belief, this doesn’t mean properties are becoming cheaper. Instead, it means the rate of price growth is slowing and could in the future result in property values reducing.
Most leading thinktanks, banks and building societies are predicting property in 2023 will become cheaper with varying ranges, from a small reduction of 5% to an alarming 28%.
There are even a handful of economists predicting stagnancy – where property values neither rise nor fall.
Personally, I think this is unlikely and analysts have long expected the property market to decrease – especially as various legislation like stamp duty breaks during the pandemic caused artificial property price inflation.
The Wider Economy
Next, we move onto the wider economy – which frankly sucks. The outlook for the economy is bleak currently due to 5 problem areas.
- Government debt and spending is too high increasing pressure for the government to increase taxation.
- Inflation is running rampant with the Bank of England continuing to neglect their 2% inflation target when setting interest rates.
- The war in Ukraine rages on – compounding problems around energy supply and government spending on aid etc.
- Strike action is happening across the country with workers demanding pay increases from a government pot that is already in massive debt.
- GDP shrinking and recession looming.
Buying Property in 2023 – Is it a Good Idea?
The answer here isn’t straightforward. For most people, buying property this year will be a bad idea – which is partly why economists are predicting property price falls to match the reduced demand.
For some it might be a good idea – it really depends on your personal situation.
These 5 tips will help you steer on the right side of a terrible market if you’re planning to buy property in 2023.
Tip 1 – Offer Less Than the Advertised Property Price
There are a few tricks estate agents use when selling properties and the most common is to overvalue the property.
You will have undoubtedly heard of someone who has made an offer on a property only for the mortgage lenders’ valuation to come in much lower – you may have even experienced that yourself.
With the outlook for property prices being as they are, you should be offering at least 10% below the advertised property price.
For example, if the property is valued at £250,000, you should be offering at £225,000.
This gives you the space you need to hopefully avoid a negative equity situation. If property values drop by 10% in the next year, you will have at least covered that loss.
You may still end up with negative equity especially if some of the more drastic decreases being predicted come to fruition. However, mitigating risk and reducing potential loss upfront is always an excellent idea and will certainly help dampen any future losses if property prices continue to fall.
Tip 2 – Always Get a Full Survey and Homebuyer’s Insurance
A survey allows you to evaluate how good the property is. You will understand the problems the property has including major defects and it can save you tens of thousands of pounds overall.
RICS offers three tiers for their surveys, but most properties will only need a level 1 survey. Level 3 surveys can cost around £1500, but don’t let this headline rate put you off, a large portion of Level 3 surveys are under £1000.
Don’t confuse a survey with the valuation a mortgage lender conducts. Mortgage valuations are basic, and sometimes just involve a lender doing market research on Google or a ‘drive-by’ valuation where a valuer visually verifies the property and location while driving by.
Homebuyer’s Insurance – Buying Property in 2023
Anything can go wrong during a property purchase, and you will undoubtedly have at least one hiccup along the way.
Homebuyer’s insurance is inexpensive and allows you to protect yourself from common issues such as a chain collapsing, and you purchase not going through.
Unfortunately, these hiccups can cost hundreds and a complete purchase failure can cost thousands of pounds in legal fees and survey costs.
Tip 3 – Don’t Pay a Mortgage Broker – Use a Fee Free Mortgage Broker
Unfortunately, most mortgage brokers charge broker fees or advice fees. These fees range from £100 anywhere up to £2000.
Mortgage brokers make money arranging insurance policies and mortgages through commissions. These commissions are often very generous, so don’t feel financially obligated to a broker.
In short, most mortgage brokers are effectively doubling up on their earning potential for each client.
What’s more, there are fee free mortgage brokers who are often much better than fee charging brokers.
The reason for this is fee charging brokers don’t have concrete incentive to arrange a product for you. They already have their profit providing advice – it is little surprise most broker fees become payable on application rather than acceptance.
Fee free brokers are only getting paid if they successfully arrange a product for you and as a result are focused on helping you get your mortgage.
Mortgage brokers that charge broker fees are frankly greedy. There is little excuse for them doing so except to make more money and the service they provide and advice they can give is the same as if you approached a fee free broker.
Tip 4 – Avoid Rural Locations and Target Urban Property
This is once more about mitigating the risk of negative equity.
At the beginning of the pandemic, many companies issued work from home initiatives which caused many people to decide to move away from urban areas to rural areas.
This caused rural property prices to rise and urban property prices to drop. For example, leasehold properties such as flats and apartments have declined in popularity over the last few years.
The work from home idea was a short-lived dream and many employers now request employees return to the office. This has caused upheaval for people who expected the work from home trend to continue indefinitely and rural properties are now being listed for sale.
The demand for urban housing is increasing compared to rural housing and if we notice significant property price decreases it will certainly hit rural areas harder than urban areas.
If you want to mitigate the risk associated with negative equity, you should seek out urban properties.
Tip 5 – Be Careful of Covenants and Restrictions
The last tip is to be wary of properties that have covenants on their deeds. A common covenant to encounter is Chancel Repair Liability which is an archaic responsibility to your local church.
If the church needs repairs such as a new roof, they can charge anyone in the local community with this covenant for the cost of repair.
Fixing medieval church buildings is incredibly expensive and homeowners have found bills posted through their letter boxes for hundreds of thousands of pounds.
If possible, avoid purchasing a property with covenants as they tend to open you up to legal liabilities. If it is unavoidable, get an insurance policy to cover the covenant, for example you can insure against Chancel Repair Liability.
Insurance policies for covenants can be expensive, and you will need to factor in the liability will be there as long as you own the property – so you will need the insurance policy for every year you are there.
The reason this tip makes the list specific for buying property in 2023 is because repairs are becoming more common especially with the adverse weather we are experiencing in the UK. What’s more, the costs associated with repairs is increasing as the specialist knowledge required to repair old buildings is a dying trade.
Is Buying Property in 2023 Right for You?
If you are unsure about buying property in 2023, it is a great idea to have a talk with one of the fee free mortgage brokers mentioned in this article.
They will be able to look at your overall financial situation and advise you specifically if buying a property is possible in the current market.