Getting on the property ladder is fiddly at the best of times, let alone when there’s a pandemic-caused recession to worry about.
If you’re a first-time buyer, you might be wondering whether it’s worth putting your hard-earned cash towards a home right now.
Or if it’s even likely you’ll get the mortgage required for your very own bricks and mortar.
To shine some light on the current situation, we asked a range of property experts – from estate agents to mortgage brokers – to give us the lay of the land.
They tell us how the recession has impacted opportunities for first-time buyers (both the positives and the negatives), what kind of mortgage rates you’ll be looking at and which areas will be most lucrative in the long-run.
Is it a good idea to buy property during a recession?
For those who have the funds: yes.
The temporary stamp duty break, where you pay no additional fees on properties under £500,000, will remain in place until the end of March, 2021 – so buying a home before then could save you a big chunk of cash.
‘Now is still a good a time to buy and there is no reason why first-time buyers should be putting their property searches on hold,’ says Raul Cimesa, head of London new homes at Knight Frank.
‘Strong enquiry levels and offers should give people confidence, while the stamp duty break means first-time buyers could stand to save a lot if they have the finances in place to progress with a purchase at this time.
‘That said, personal circumstances, finance planning and proper due diligence must always considered before a commitment is made.’
Interest in London new builds is still going strong, with first-time buyers keen to utilise Help to Buy before it runs out in 2023.
Grainne Gilmore, head of research at Zoopla, also points out that the pandemic and the resulting lockdown has made people review their lifestyles and what they want from their future home.
She says: ‘Some potential buyers will have reassessed how and where they live during lockdown, and will now be using this opportunity to take their first step onto the housing ladder, especially those with access to larger deposits, which means they can access the most competitively-priced mortgages.’
Overall, most property experts we spoke to had a positive outlook on buying property during a recession, including Tony Gambrill, regional sales director for Chestertons.
‘Property prices can always go up and down and becoming a homeowner always carries some risks but on the whole, I do think now is a good time for first-time buyers to get on the ladder as they can take advantage of the stamp duty holiday (saving up to £15,000), will be able to enjoy some record-low mortgage rates and prices in many areas are a bit lower than they were previously.
‘However, buyers should be careful not to over-stretch themselves financially or take large risks if they feel their employment is fragile.’
How hard is it to get a mortgage during a recession?
Here is where the bad news comes in.
Unless you have a large deposit already saved up or can get help from The Bank of Mum and Dad (or other family members and/or partners) it will be very difficult to get the mortgage you need.
Lenders have reduced their loan-to-value (LTV) rates, meaning that you will need to secure a much higher deposit for your home, unless the property is part of a scheme such as Help To Buy, where the government chips in cash.
The recession is only making matters worse, as lenders will be much harsher on who they give a loan to, especially if it appears as if the person might lose their job in the near future.
‘It is already trickier for first-time buyers to get a mortgage compared with other borrowers because of the difficulty in pulling together a big enough deposit,’ says Jonathan Harris, managing director of mortgage broker Forensic Property Finance.
‘Few lenders are offering high loan-to-value deals and those which do are being inundated with business, often running out of the daily allocation of funds early on.
‘Many lenders also restrict income multiples for those on lower salaries.
‘The recession certainly won’t make life any easier and lenders will continue to scrutinise incomes and job security carefully, particularly as the furlough scheme comes to an end.’
Found a property within your budget?
Great – just make sure to research different mortgage rates to find out what will suit your current financial situation best.
Jonathan adds: ‘You may wish to consider taking out a fixed-rate mortgage so that you know what your monthly payments are for a set period of time.
‘If your finances are at all precarious, you may wish to wait instead and perhaps use the time to save for a bigger deposit.’
First-time buyers will also need to be patient, and note that some lenders might completely exclude those who are furloughed or in other precarious financial situations.
Kevin Roberts, director of Legal & General Mortgage Club says: ‘As the economic implications of the pandemic begin to be felt, we are seeing more lenders taking a closer look at mortgage applications, particularly for the self-employed or borrowers with less certainty around their future income, for example those who have been furloughed.
‘This does mean that the process for these customers might be more challenging and could take longer.
‘This isn’t lenders trying to single out a particular group of borrowers. Instead, it is a sign that lenders are acting responsibility and working to ensure they do not lend to an individual who might find themselves unable to afford their mortgage in a few months’ time.’
But wait, we have more bad news (sorry).
‘Lenders have also reduced the “income multiples” so that it is now difficult to get a mortgage worth more than 4.5x your income, whereas before you could get 5x or more,’ Henry Knight, managing director of mortgage broker Springtide Capital, tells us.
‘However, it is not just the aversion to risk which is currently restricting lending.
‘Mortgage payment holidays, bounce-back loans and other business support schemes from the government have put a huge burden of work onto banks and has forced them to re-deploy many of their workers onto this side of the business, which has left fewer dealing with mortgages and resulted in a big reduction in lenders’ capacity to process applications.’
Dry your eyes, there is one positive side to a recession: a drop in property prices.
While this time is a horrible situation for many, those who manage to hold on to their jobs could pick up a cheaper property in months to come, with market forecasters expecting prices to drop as a result of the economic crash.
But this is something to bear in mind for first-time buyers who plan to sell their first home in the coming years.
Jonathan says: ‘If property prices fall as a result of the recession, first-time buyers could be hit hardest simply because they are likely to have the smallest amount of equity in their home.
‘This could mean they find themselves in negative equity, depending on their LTV and the amount prices fall, but this is only an issue if you are selling or remortgaging.
‘If you buy with the aim of staying in that property for a while, and don’t overstretch yourself in the first place, it shouldn’t be a problem as property prices tend to rise over time and usually correct themselves.’
Current trends are also showing that property prices have not fallen yet.
Increased interest from first-time buyers who have the means to get a home during the recession – and the boost in competition for popular properties or areas – means that prices are still rising.
So it could be worth holding off a few months if you have a smaller budget.
Where to buy a property during the recession
Finally, we asked the property experts to share some top tips on areas in London specifically, where first-time buyers will get the most for their buck.
And, which are likely to see property prices remain stable – should buyers want to sell soon in coming years.
Raul says: ‘The best places for first-time buyers to look at the moment are in areas of regeneration, such as Royal Docks in the east – which is now established, with good access to green spaces and lots more to come at current and future projects.
‘In the South East, look to Deptford, which offers easy access to central London with exciting new developments planned over the coming years.’
It’s also worthwhile looking for properties that could add value over time in terms distance to public transport links or which have sough-after features such as gardens and spare rooms.
Tony says: ‘Buying a property is as much a lifestyle choice as it is a financial one so you should pick an area based on where you feel most comfortable and where is most convenient for you, as opposed to where might possibly rise a few extra percent in value more than other areas.
‘Try and get somewhere which gives you an easy trip into work or is close to your circle or friends or has the transport connections which allow you to see family.
‘I think places Like Kentish Town, Camden and Bermondsey can offer good value for money and great locations.
‘There are a few general features that always make a property more desirable and therefore allow it to rise in value faster than others.
‘These include outside space – be it a balcony, garden or terrace; close to transport or a park; a good-sized second bedroom which can potentially be rented out or a space that can fit a desk for home-working, even if its just a large landing or wider hallway.’
Outside of London, Richard Hayes, CEO and co-founder of online mortgage broker, Mojo Mortgages, shares the top 10 areas to invest in.
He says: ‘From our own research, the best areas to buy in right now include: Newcastle, Aberdeen, Belfast, Stoke-on Trent, Hull Coventry, Southampton, Bournemouth, Cardiff and Leeds.
‘We’ve seen that these 10 areas have been rising in value consistently.’
However, bare in mind that these are just predictions and the uncertainty around how the pandemic will affect the market long-term comes into play, too.
Gerard Boon of mortgage broker Boon Brokers, adds: ‘This is difficult to assess because not enough data has been published on the matter.
‘However, from my experience with buyers in recent months, I would suggest that UK holiday destinations are a sensible investment if the end-goal is property inflation for first-time buyers.
‘This is because currently, as many UK citizens are reluctant to travel abroad due to fears over the pandemic, demand for properties to rent in those locations has soared.
‘Even though a first-time buyer may not be renting out the property, the general demand generated in the area from a rise in visitors is likely to result in inflation to their property too as a knock-on effect. I know that from my local area, north Norfolk has become increasingly popular since the pandemic first struck the UK.’
There you have it.
Good luck, first-time buyers.
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