Should I buy a home in a recession?
The UK will be in until at least the end of 2023… or so we thought. Then October and November happened, and somehow the economy grew slightly. Believe it or not, the good vibes set out by the World Cup probably pushed us over the 0% mark.
Whether or not we’re officially in a recession, the UK economy is somewhat stagnant. Inflation is high, wages are low, and the cost of living is exceptionally high.
But what does that mean for homebuyers? Is now the time to buy or not? Ultimately, it comes down to your personal circumstances and decisions.
In this article, we’ve combined a few thoughts on balancing the risk and rewards of buying a home in a recession.
How does a recession impact the UK property market?
The British property market tends to follow the same trends as the other industries in the country and other property markets worldwide.
A recession represents a loss of buying power. It happens when people are unsure about spending their money, so they don’t. With smaller financial exchanges, there’s less to prop the overall economy up, and prices go up further.
The way out of a recession is for everyone to start spending again, but that only happens once consumer confidence returns. This is usually spearheaded by government schemes and banks.
When we’re in a recession (as we probably are right now, although things are little unique on this occasion), house values tend to drop. Or, at the very least, the rate at which they grow slows to almost nothing.
These lower prices tempt many people onto the property ladder. That’s great – as long as you’re buying a home you can afford.
Lower property values vs riding out the higher living costs
The lower upfront value is the most attractive feature of buying a home in a recession. Higher costs mean more foreclosures, and house prices drop to match the funds available to buyers.
The downside is that you’ll also be paying more for daily life – food, bills, transport, etc. Thus, living in that home will cost more, which might impact your ability to meet the monthly mortgage repayment. Buying in a recession is simply a balance of these two factors.
Look at fixed mortgage rates for at least several years and calculate your budget on a worst-case scenario. It’s definitely not the time for a variable rate – you can always remortgage if necessary.
Should you buy a house in a recession?
At a fundamental level, buying a home in a recession is the same as buying one when the markets are performing well. That is, it’s all about what you can afford – and, in reality, that’s the be-all and end-all.
Markets are always somewhat unpredictable. For example, few people will have foreseen the current cost-of-living crisis, brought on by a combination of the Ukraine War, Covid, and Brexit. But they usually balance out with time.
So, the question isn’t really about whether property values will rise again. They will. It might take a month, a year, or more, but they will eventually climb again. They also might go down in the meantime, of course.
Rather than considering this, you should – pure and simple – consider whether you can afford to buy a house right now. Some people can’t; some can’t.
Why getting a home survey is still vital in a recession
In a recession, it’s tempting to cut costs wherever possible. You might even entertain the idea of skipping a home survey to save yourself a little money.
We’d strongly advise getting a home survey. It’s arguably even more critical during a recession than otherwise.
That’s because every financial transaction inherently carries more risk. That risk is multiplied when it’s a money exchange as significant as a house (probably the most expensive thing you’ll ever buy).
Home surveys regularly find common problems and hidden faults that the current owner doesn’t want you to know about. Without getting one of these, you might find yourself in a house that’s too expensive to maintain and impossible to sell. In a recession, that’s a dangerous scenario.
We absolutely understand wanting to be careful with your finances. However, getting a home survey is the safer option.
If you’re considering buying in a recession, look for Government-backed (or private) buying schemes. These often help with mitigating some of the costs. It benefits the country by floating the economy and giving it a much-needed boost.
We’d be happy to discuss your potential home purchase with you and help with explaining the risks and rewards involved with recession buying. All of that will be free of any commitment, of course.
Use the form below or call us to learn more about RICS home surveys.
