What will happen to house prices?

Will they rise or should you wait for a fall?

They make headlines and pop up on newspaper front pages, while TV shows just can’t get enough. They’re a perennial of parents’ chat all the way from the school gates to family dinner tables (and then at dinner parties too).

With their every move watched by millions each month, they have a huge impact on consumer confidence and the UK’s economic health. They’re a bona fide part of the national conversation. Also, some might suggest, they’ve long been a bit of a nationwide obsession.

We’re talking house prices, of course. Whether they’re up, down or holding steady, they play a major part in shaping how we feel about the merits of owning a home.

So it’s no wonder the direction of house prices takes on extra importance if you’re looking to buy (or even just thinking of it).

Home ownership - especially if you’re a first-time buyer -  can feel like a huge leap of faith.

And feeling confident about property prices can be very comforting. By the same token, if you’re full of uncertainty about which way they might go, it can leave you very unsure about your decision to buy.

Either way, it leaves many first-time buyers and movers asking ‘crystal ball’ questions such as ‘Are house prices going up?', ‘Could I end up in negative equity?’ and 'When will house prices drop?'

To help you decide your approach to house price fluctuations, here are four key points to consider:

1. No-one knows if house prices will rise or fall but plenty of forecasters will give you an opinion

Nobody can tell you the future of house prices. But there are plenty of forecasters who can offer useful opinions, and charts galore to show you historic trends.  

Take a look at the UK House Price Index from the Land Registry – a Government body that records property ownership in England and Wales – for historic average property prices between 1966 and 2022. It reveals an upward trend broadly in line with economic growth. However, the same chart also includes years of big rises, drops and lots of bumpy uneven price moves.

Put simply, buy your home with the aim of keeping it for a number of years - and it should hopefully be worth more when (or if) you decide to sell.

But there’s never a guarantee. Prices fell steeply in the early 1990s recession and 2008 financial crisis. Selling a home when prices are heading south can be a real struggle.

2. Waiting for house price falls could backfire if you want a bargain

Holding off in the hope of big price falls is a short-term gamble – it could work but has potential to backfire.

Using the Land Registry’s house price index above, a first-time buyer in September 2007 who held off buying a flat or maisonette (at average prices) could have been able to buy at £136,442 in March 2009 instead of £164,251 – nearly £28,000 cheaper.

The actual saving, of course, depends on personal circumstances. For example, if the same buyer had been renting, this 18-month cost could have taken a big chunk out of the overall amount of money saved.

But this kind of perspective is based on average house price trends.

As a buyer, you could find you secure a bigger price drop (and bigger saving) on an individual property by negotiating with the seller, say, or finding more value in a doer-upper.

And it’s also vital to consider the potential cost of waiting if house prices continue to climb.

You could find your target home soon becomes too expensive and – especially if prices rise at a rate faster than you can save – ends up out of reach.

3. Sharp falls in house prices could make it difficult to sell

Let’s take another look at the Land Registry’s record of historic average property prices.

While it does show a slow rise over the past 56 years, it also shows spells where house prices fell. In September 2007, the average price for all property types stood at £190,032. By February 2009, as the global financial crisis took hold, it was £155,417 – a slump of nearly 20%. It didn’t recover to its Sep 2007 level until late summer 2014.

While such price falls can be a concern for any owner, they can be very unsettling for new buyers with little equity in their homes. If it reaches a point where your property is less than what you owe on your mortgage, it’s called negative equity. This is when it's almost impossible to sell a home without making a loss, or having to pay the shortfall out of savings.

Yet as worrying as this situation can feel, the cause for alarm would only be acute if you needed to immediately move or sell up.

If you’ve bought for the longer term, it’s much less of a problem. This is because you’ll hopefully be able to hold on until prices pick up again.

As long as you can carry on paying your mortgage, you’ll still end up owning your home outright. And the longer you repay your mortgage, the less likely you’ll be in negative equity.

And what if prices broadly stay the same when you buy a home? Well – again – while you won't benefit from rises, it does mean that every monthly mortgage payment brings you a step closer to owning your home outright.

4. Buy for the right reason…the one that suits you

Buyers choose a home for any number of personal reasons – a growing family; security; to live near relatives; to benefit from great schools; the list is long. 

If you have a clear purpose and can afford the property in question, you’re in as healthy a position to buy as you could ask for.

Unless you’re a seasoned investor seeking specific financial gains, it can be a difficult – and fraught – task trying to time the housing market in your favour. 

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