When should we get back on the property ladder?

It is the question that everyone interested in the property market wants answered: is now the time to buy, or is it wiser to hold fire until concrete evidence emerges that house prices are finally starting to rise again?

The price of the average home has slumped by a whopping 15 per cent to around £150,000 over the past year as the global recession and the credit crunch began to bite.

But a string of interest rate cuts, an increase in the number of mortgages being approved, and measures introduced by the Government to stimulate the market are making some commentators cautiously optimistic.

So what should people do? We consulted a wide variety of analysts, economists and property industry observers to draw up a list of the issues that potential buyers need to think about before making their decision.

What will happen to house prices?

It won't come as a huge surprise to hear that opinions are divided. Seema Shah, a property analyst with Capital Economics, certainly doesn't anticipate cracking open the champagne to celebrate a market recovery any time soon.

"We expect prices to continue falling throughout this year and into 2010 as well," she says.

"This is largely based on the awful outlook as we expect the economy to continue contracting and for unemployment to rise quite sharply."

Simon Ward, chief economist at Henderson Global Investors, agrees. He points out that house prices could fall a further 14 per cent, while the two previous property slumps have seen values falling for four years, and then stagnating, before rising.

"We're currently two years through this downturn, so you're probably not going to miss out by holding off from buying for a bit longer," he says. "However, for those looking to remain in a house for five or ten years, it's not a bad time to start looking."

It is virtually impossible to accurately time the bottom of the market, he adds. However, as long as buyers can strike an attractive deal, this should cushion the effect of any further price falls over the next couple of years.

And they might even make a profit, suggests Mandy Bradley, director of Propertyforecasts.co.uk, which uses a variety of financial data to predict future price movements. She expects average values to stabilise over the next few months.

"We then anticipate there being a very small increase in average prices over the next couple of years amounting to between one and five per cent," she says. "Obviously this will depend on your locality as some areas are still likely to suffer falls."

The advantages of renting

One attractive option during property market volatility is to rent until a clearer picture emerges. You won't have to splash out thousands of pounds on fees and expenses, and you could possibly time your entry into the market after prices have fallen further.

Anyone looking to rent can certainly drive a hard bargain at the moment, because there is so much choice available, according to Mike Goddard, chief executive of Belvoir, the property management agency.

"There are a real shortage of tenants and an oversupply of properties because of the number of reluctant landlords that can't sell their properties and are now letting them out," he says. "This puts tenants in a strong position."

One way of comparing the costs of renting and buying is to visit the website Propertyfinder (www.propertyfinderrevolution.com). After typing in your maximum monthly budget, the site will find the various properties – for sale or rent – in a given location.

Should first-time buyers get on the ladder?

The good news is that homes are more affordable than at any time in the past six years, according to Halifax, whose house price to earnings ratio has fallen 26 per cent from a peak of 5.84 in July 2007 to 4.34 in March 2009.

Martin Ellis, housing economist at Halifax, says this proves houses have become more affordable, even though market conditions are likely to remain tough with the potential of further falls.

"There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the UK over the past 18 months," he says. "This has resulted largely from the decline in house prices since the autumn of 2007."

There is also the added attraction of Stamp Duty – the tax which is paid on property purchases – being suspended for homes worth up to £175,000. This helps first-time buyers, in particular, juggle their finances.

Even so, it can be argued that it's now more difficult for them to get on the property ladder, suggests Andrew Smith, chief economist at KPMG. "A couple of years ago they could get 90 or 100 per cent mortgages, but the available loans-to-value have shifted downwards," he explains. "This means they'll need a bigger deposit."

As long as they thoroughly research what they're intending to buy, it might be worth first-timers looking at what's available via the property auctions, suggests Kate Faulkner, managing director of website DesignsOnProperty.co.uk.

"It's a good place to head for as long as they sort out the finance, the legal issues and the surveys first," she says. "They are a great place to pick up repossession bargains and there are some very nice homes on offer across the country."

Richard Mason of MoneyExtra.com is also in the positive camp. "The reductions in interest rates are now having an effect," he says. "People are beginning to realise you can now buy a property cheaper than you can rent one."

Should existing homeowners climb the ladder?

The advantages of buying now are that interest rates are extraordinarily low, which means mortgages are generally more affordable, while it's also possible to drive a hard bargain as those needing to move are struggling to attract potential buyers.

In contrast to people entering the market, it could actually be a good time to climb up the property ladder, suggests Andrew Smith at KPMG. "If you're trading up then, theoretically, things ought to be moving in your favour because 20 per cent off a £500,000 house is more than the same percentage off one worth £250,000."

The tightening of lending criteria during the credit crunch is also starting to be relaxed now which will help the market, according to David Hollingworth, spokesman for mortgage broker London & Country.

However, the more money buyers can put down, the cheaper the rate they will pay. "Ideally, they will need to have a deposit of at least 15 per cent and even more attractive deals are available for those who can stretch to 25 per cent," he says.

Ray Boulger, senior technical manager at John Charcol, the independent mortgage adviser, agrees that now could be a very good time to buy – and suggests the latent demand that has built up could force prices higher over the next few years.

"Provided they can afford the mortgage and deposit, are confident about their own job prospects and intend to stay in the area for some time, then it makes sense to consider buying," he says. "However, potential homeowners shouldn't expect to make a quick profit," he warns.

The acquisition and disposal costs are still relatively high, while the property market remains very uncertain, he adds, so it'd be foolish to expect to sell the property within a couple of years for a premium.

When to buy: The tell-tale signs

1. Unemployment stabilising:

More people in work means there is an increased demand for properties and fewer repossessions.

2. A sharp increase in mortgage approvals:

This shows that people want to start buying and this will get the market moving once again.

3. It becomes cheaper to buy than rent:

People will realise they could own their homes for the same money they are paying to the landlord.

4. Rising consumer confidence:

When people are feeling upbeat they are more willing to spend – whether that's in the shops or by making major purchases, such as a house.

Case study: Alan Crofts

Advertising consultant Alan Crofts is planning to turn the current housing market turmoil to his advantage by snapping up a bargain in the next few months. The 48-year-old, who is currently selling his £300,000 house on the outskirts of Cheshire, is looking for a new build property from a developer that is currently struggling to find buyers.

"If they have money invested in a property, they are now more likely to make a reduction to recoup some cash and move on to the next project," he says. Mr Crofts, who is due to get married next month to fiancée Lisa Buckley, wants a house in the £600,000 to £800,000 range and has already been scouring websites such as MoneyExtra.com for a suitable mortgage.

"I am looking for a 60 per cent loan-to-value as I will be able to put down a decent deposit, so a mortgage shouldn't be a problem," he says. The prospect of getting a bargain seems good. He has already seen the asking price of one property fall from £795,000 to £650,000 and is hopeful he will find something to meet his needs.

"I have been searching on the internet for a while and am starting to see more houses falling into my price bracket," he says. "If you find someone struggling to sell and are able to get the money to them quickly, then they will probably bite your hand off at the moment."

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