A common question or statement I am hearing from some buyers now is… “I’m going to wait until the rates drop or see what’s happening first.”
The answer simply put is do not wait… buy now! If mortgage rates do come down, you can re-finance at the lower rate.
Mortgage rates
The average residential fixed-rate loans are around 4.67% right now, with buy-to-let options averaging at 6% and are likely to climb higher in the current market.
In the same year we saw the average rates lower than 3% for the same type of loan, therefore its natural for people not experienced in the property market to be reluctant to buy a property now due to the increased rates being more expensive.
It may seem like it makes sense not to buy until the mortgage rates drop, however there is one BIG reason that isn’t the way to think…. Buy now
Why waiting for the mortgage rates to drop doesn’t make sense!
Rates are likely to continue to increase, then plateau out and drop again to a better rate.
If you buy now and the rate drops, you can re-finance the mortgage to the lower rate. BUT, if you wait to purchase a property in the hope the rates will come down, you cannot retrospectively undo your mistake of missing today’s rates, you cannot go back and get the old rate! Look at those who did not listen to me/industry experts 3 months ago.
No one can predict exactly where rates will go, however with the reality being the bank of England rate increasing again since the latest mini-budget and the fight against inflation, the rates are likely to increase again and for the foreseeable future. All my investors over the last 12 years I based it on increasing to 8%.
You do not want to look back and regret not borrowing now at today’s price if they do indeed continue to go up. Like I said if they do happen to fall, it is a simple enough process to refinance at the new rate.
Should you buy a home at current mortgage rates?
Yes, mortgage rates have increased, however that should not be the defining factor in whether you purchase a new property.
Put it this way, mortgages are less expensive than renting or other kids of debt due to the fact they are secured loans. Homeowners generally end up with a higher net worth than renters, since paying down a mortgage gives you equity, on top of capital growth… the longest it’s taken property equity value to double in the UK is 14 years, and you remain to own an asset.
You don't want to put off owning a home forever and losing out on the wealth building benefits of ownership in hopes that rates decline. Even more so that you can refinance at the lower rate should mortgage rates drop.
The key element to consider is whether you are currently financially ready, if you are then buy!
If you have good credit, minimal debts, a good deposit at hand, and money saved for emergencies, moving forward with buying a home even with a higher-rate mortgage would still be the right choice in the end. Most self-made millionaires in the UK are through property.
You just want to make sure your loan payments are affordable for you now and in the future, even if that means buying a slightly smaller house than you were hoping for. Remember this home value will increase, it may not be your dream home now however it will continue to do more than your bank account will in terms of generating wealth.
Once you're into your home, you can begin building equity and can watch to see if rates go down, at which time you can choose to act to lower the cost of your home loan.
I offer advice to property investors all round the world, should you want to discuss anything property related reach out now and happy to help, it doesn’t matter if you are at the start of your journey or experienced looking for the exit strategy!
- Charlie Panayi, Managing Director
