Think carefully before joining the rush to beat the house price boom

With interest rates so low, Simon Read explains the pros and cons of jumping on the mortgage ladder now

Worried about rising house prices? Want to rush to get on the housing ladder while interest rates are at a record low? There's a growing fear among potential homeowners that they could miss out if they don't move quickly. But is it being generated by commission-hungry estate agents? Or are we really in a crucial moment that means now is a really good time to buy?

Rather than being persuaded that you must rush to buy, maybe it's better to start by understanding some reasons why you shouldn't rush to buy now. For starters, there's the risk of a property bubble. That's based around the idea that prices have risen too much too quickly and if the bubble bursts, prices could soon fall dramatically.

Will there be a property bubble?

Some experts think so. Last month the majority of economists asked in a Reuters poll put the chances at 50-50 or higher over the next five years. Some 20 out of 29 economists said the prospect of another house price bubble is evens, likely or very likely.

The consequences for anyone buying a home now could be stark: they could quickly end up in negative equity, where they owe more than their home is worth.

“There's been a lot of talk about the formation of a housing bubble and fears over when it is set to burst. But the fact remains that due to the nature of the housing market you will always be, to some extent, taking a risk,” points out Andy Knee, chief executive of conveyancing experts LMS.

In short, fears of a bubble shouldn't deter you from buying a home that you plan to remain in for some time. Negative equity will only affect you if you need to sell quickly.

“You should bear in mind that each monthly payment you make reduces your overall balance and goes some way to offsetting any reduction in the property price that may occur,” says Andrew Hagger, personal finance analyst from

For instance if you borrow £130,000 against a property worth £153,000 your £23,000 stake represents 15 per cent, he says.

If you repay the £130,000 over a 25-year term – initially at 3.79 per cent (First Direct with no fee) fixed for the first five years – your monthly repayment will be £672.

At the end of the five-year fix your remaining mortgage balance will have reduced to £112,750.

Even if there is a severe drop in property prices during this period of 20 per cent your property will be worth £122,000, so even though your equity will have reduced so has your balance, and you won't be in negative equity, says Mr Hagger.

What other reasons are there not to buy a home now?

The accepted wisdom about buying a property is only do so when you can afford the mortgage repayments and have found a home in which you are going to be comfortable. Panic buying could mean ending up with a property you soon hate or can't afford to maintain.

“The overarching rule has to be that no-one should rush into buying a property unless they are really sure that it is the right home for them in the medium term, and, of course, that any mortgage borrowing will be affordable,” advises David Hollingworth of brokers London & Country Mortgages.

“Buying a property is much too big a commitment to rush headlong into without getting a real feel of what's available. That's certainly true when there are so many different options and Government-backed initiatives in play, the ins and outs of which really need to be understood before going ahead.”

Other experts echo that advice. Mark Harris, chief executive of broker SPF Private Clients, says: “Don't overstretch yourself financially. Take independent advice when it comes to getting a mortgage, and if you are buying an investment property make sure you do so in an area where it will be easy to find tenants, rather than buying something because you quite like it yourself.”

Brian Murphy, head of lending at Mortgage Advice Bureau, adds: “Ultimately buyers need to make the move to purchase a property when the time is right for them. If they're close to being ready to embark on a property purchase then the current market is an attractive one to get involved in, but encouraging those not yet ready to rush would be a foolish endeavour.”

Is there an argument for buying a home now?

If you have a decent deposit saved, then borrowing while rates remain low could be a good idea. If you have already found your dream home and are ready to move, buying now before prices climb any higher could also be beneficial.

Jonathan Harris, director of broker Anderson Harris, says: “If you have found a property you wish to buy, the price is right and you can afford it, then now is a good time. There are some excellent mortgage rates available and prices in some parts of the country continue to rise, so now is as good a time as any to get on the housing ladder or move up.”

Depending on your current situation, there's an argument for waiting until January for the introduction of the mortgage guarantee element of the Government's Help to Buy scheme. Then new borrowers will only need a 5 per cent deposit and will be able to buy older properties as well as new-builds.

“However, there are fears that property prices may rise because more people will be in a position to buy,” warns Mr Harris. “So it's important to weigh up whether it is worth waiting or taking the plunge now, assuming you can afford to do so.”

Andy Knee says: “Increasing levels of activity and rising demand in the housing market are driving house prices up, so you should take the attitude of the sooner the better. Although the cost of buying a home can be high, with interest rates so low mortgage repayments in many cases can be a cheaper option than renting.”

Mr Hollingworth adds: “The more-competitive mortgage market has made finance more affordable and borrowers can fix at very attractive rates. That will also protect against future rate rises and give them budgeting security if they find the right place and make the decision to take the plunge.”

What's the best mortgage deal?

That obviously depends on your situation. Fixed rates are low at the moment and can give you certainty in the future. In short, if you can afford repayments now, then you should be able to in coming months and years.

But a variable rate deal also has advantages, not least that you're not locked into a five-year term and penalties. If you need flexibility, then variable could be a better answer for you.

“One of the biggest problems is working out which is the best mortgage based on the total cost; not just the interest rate but also the associated fees which can vary enormously between lenders, deposits and individual products,” says Mr Hagger.

“Selecting the most appropriate mortgage isn't a two-minute job because it's not a case of one mortgage fits all. The best deal will also depend on your own personal circumstances including the length of the term and the amount you're looking to borrow.

“When you consider that your mortgage is likely to be the biggest financial transaction you'll undertake in your lifetime, it makes sense to seek advice to ensure you don't make what could be a potentially expensive mistake.”

Have you tried new the Independent Digital Edition apps?
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
There have been various incidents of social media users inadvertently flouting the law

footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Life and Style

Board creates magnetic field to achieve lift

Renee Zellweger as Bridget Jones
Those who were encouraged to walk in a happy manner remembered less negative words
Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Sudan, the last male northern white rhino
environmentThe death of a white northern rhino in Kenya has left the species with a single male. These are the other species on the brink
Finacial products from our partners
Property search




Fee-free, expert mortgage advice:

  • Find the right mortgage for you
  • Latest best-buy deals
  • Mortgage calculators
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Helpdesk Analyst

    £23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

    Senior Helpdesk Analyst / Service Desk Co-ordinator

    £27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

    Senior Pensions Administrator

    £23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

    Corporate Actions Administrator / Operations Administrator

    £25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

    Day In a Page

    Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

    A new American serial killer?

    Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
    Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

    Sting to trap paedophiles may not carry weight in UK courts

    Computer image of ‘Sweetie’ represented entrapment, experts say
    Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

    Return to Fukushima – a land they will never call home again

    Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
    Online petitions: Sign here to change the world

    Want to change the world? Just sign here

    The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
    Ed Sheeran hits back after being labelled too boring to headline festivals

    'You need me, I don’t need you'

    Ed Sheeran hits back after being labelled too boring to headline festivals
    How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

    How to Get Away with Murder

    Shonda Rhimes reinvents the legal drama
    A cup of tea is every worker's right

    Hard to swallow

    Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
    Which animals are nearly extinct?

    Which animals are nearly extinct?

    Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
    12 best children's shoes

    Perfect for leaf-kicking: 12 best children's shoes

    Find footwear perfect to keep kids' feet protected this autumn
    Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

    Arsenal’s ray of light ready to shine again

    Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
    Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

    Moyes’ show of sensitivity thrown back in his face... by Ferguson

    Manchester United legend tramples on successor who resisted criticising his inheritance
    Two super-sized ships have cruised into British waters, but how big can these behemoths get?

    Super-sized ships: How big can they get?

    Two of the largest vessels in the world cruised into UK waters last week
    British doctors on brink of 'cure' for paralysis with spinal cord treatment

    British doctors on brink of cure for paralysis

    Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
    Let's talk about loss

    We need to talk about loss

    Secrecy and silence surround stillbirth