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When is it worth taking out a mortgage in the UK? We explain

Kiedy warto wziąć kredyt hipoteczny w UK?

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Most UK residents are unable to buy a home without using a mortgage. This is hardly surprising, as a typical property can cost up to nine times your annual earnings, and we often think about moving ‘into our own’ in early adulthood rather than retirement. Now that we know that a mortgage is likely to be necessary, the question remains – is there a better or worse time to take one out?

What is the best time to take out a mortgage?

When is it worth taking out a mortgage in uk?
When is it worth taking out a mortgage in the UK?

This is a question we hear very often and the answer is always the same – you only find out about the ideal time to take out a home mortgage when it has passed. Why? Because under optimum conditions, the purchase of a property should take place at the time of the lowest prices on the market, with the lowest possible mortgage rates at the same time. We can only speak of the occurrence of a price ‘hole’ once the rises have occurred, so we will always refer to past events.

However, this does not mean that there are no better and worse times in the market. In the rest of this article, we will try to take a closer look at this topic and when it is worth taking out a mortgage to buy a home in the UK.

Is it worth taking out a mortgage when interest rates are high?

Whether it is worth taking out a mortgage when interest rates are high.
The headquarters of the Bank of England – it’s the one that determines whether your mortgage will be high-interest

For a long time, interest rates in the UK have not been rising – the last increase was in August 2023, and they are now at their highest level since April 2008, when the post-crisis recovery programme began. This situation is not encouraging, as the cost of borrowing money is rising. High mortgage payments certainly do not encourage the purchase of a new home, but this medal also has another side – the cost of renting is inexorably rising.

Unfortunately, the property market reacts quite quickly to all changes in the economy – when interest rates, and therefore borrowing costs, rise, owners of houses and flats for rent are very quick to raise rents in order not to lose out on their investment. In return, transaction prices are falling because fewer people can afford to buy a house, which is harder to pay off.

Over the past few months, we have seen fairly regular price falls in the property market. This is a very good sign, because with each passing month, the profitability of buying is increasing – thanks to inflation, our salaries are rising, while the banks’ offers remain fairly similar.

Is it worth taking out a mortgage at a particular time of the year?

Is it worth taking out a mortgage at a particular time of year?
Is it worth taking out a mortgage at a particular time of year?

Counter-intuitively, not every month is equally good for making this commitment. Our observations suggest that:

  • July and August are the months when the market is at a standstill – many people go on holiday and put off the decision to sell their home until September;
  • There is a gentle boost to the property market in September and October;
  • At the end of November and in December, banks slightly improve the terms of their offers in order to increase their financial results;
  • At the start of January, employers are raising wages and paying bonuses that can encourage people to buy property – their creditworthiness often increases. This is a time when house and flat prices can take a turn for the worse;
  • In spring, property prices still tend to rise, as this is when most people are thinking about moving;
  • The market calms down at the end of May and the beginning of June, which of course has to do with the upcoming holiday season.

Please note that the above statements can be heavily subjective – our judgements are based on relatively small data only, and actual prices also depend on the economic situation, the strength of the British pound against other currencies or inflation.

In that case, what is the best month to buy? It seems to be December or January. Banks are highly motivated to provide mortgages because the total value of financial products sold translates into their performance and consequently, into bonuses for employees. It happens that some lenders introduce slightly more favourable offers to further convince buyers.

The middle of summer is also a potentially good time to buy – this is a time when there is a little less interest in properties, so there are more chances to negotiate a slightly better price. In return, your mortgage may be slightly more expensive. The holidays are a good time to make a purchase for which you will use more cash, as this will offset the slightly higher financing costs.

I have a 5% deposit and I don’t know if it’s worth taking out a mortgage. Maybe it’s better to wait and raise some cash?

I have a 5% deposit and I don't know if it's worth taking out a mortgage. Maybe it's better to wait and raise some cash?
I have a 5% deposit and I don’t know if it’s worth taking out a mortgage. Maybe it’s better to wait and raise some cash?

Our customers also ask this question from time to time. In this case, however, answering it is not so simple, because ‘a little’ is a very broad wording. Let us use two examples:

Emma and Paul are looking around for a small house away from the big city, 60 to 70 square metres will be enough, so their budget is around £100,000. The amount the couple will need to set aside for their own contribution and transaction costs is a minimum of £7,000-£8,000.

In this situation, Emma and Paul need an additional £5,000 to get a more favourable offer on a loan with a 10% deposit. Although we are still talking about a fairly large sum, raising this amount should not pose much of a problem, even on a relatively low income. In return for postponing the move by a few months, they can get noticeably better loan terms and, as a result, their monthly instalment will be lower.

Mark and Natalie have three children and are looking for a house in Edinburgh. Although property prices in Scotland are noticeably lower than in England, the house chosen by this family costs £320,000. Mark and Natalie have been saving money for many years and received a donation from their parents, which enabled them to raise £36,000.

If this is the case, raising a further 5% of the value of the property will be much more difficult – after all, we are talking about an extra £16,000. With three children, continuing to live in a rented house and save cash will take longer and involve a lot of effort, so it seems to us that it is not worth holding off on the purchase. Even if they had a 5% deposit, or around £20,000, we would further advise them not to wait.

Your decision on the amount of your own contribution should be very thoughtful – on the one hand, the more cash you accumulate, the less you will have to borrow and, consequently, the mortgage repayment terms and total interest value will be more favourable. On the other hand, you have to live somewhere and the funds allocated to rent will never come back to you. In most cases, raising a further 5% deposit will be a major challenge, which could completely deter you from buying your own home.

What about a situation where you anticipate a marked improvement in your income over the next few years? A solution you can (and even should) reach for is remortgage, i.e. swapping one bank for another. By taking out a new mortgage, you can shorten or lengthen the term of the mortgage, and if you have paid off a clear portion of the capital by then, the terms of the offer at the new bank will certainly be more favourable. It is exactly as if you were taking out a mortgage with a larger deposit.

Be sure to check out: Buying or renting a home in the UK?

We’ll be expanding our family in a few years’ time. Is it worth taking out a mortgage now?

We'll be expanding our family in a few years' time. Is it worth taking out a mortgage now?
We’ll be expanding our family in a few years’ time. Is it worth taking out a mortgage now?

Someone once said that the more certain we are about something, the greater the risk that fate will decide otherwise. We cannot predict how many people our family will have or how much we will be earning in five years’ time. For this reason, we believe that when buying a property, it is not worth suggesting what might happen one day. Instead, it’s better to select a home to suit your current budget and with your current needs in mind.

What if you need an extra bedroom? A home extension mortgage may be the solution, as well as selling your existing property and buying a new, larger one. Yes, moving may be a challenge for you, but over a few years, you’ll be paying off a good portion of your home, so when you swap it, the amount of the new mortgage won’t be that high at all. So it doesn’t really matter whether you plan to expand your family or not – you can always sell your existing home and there’s a good chance you’re unlikely to lose out on this, although this is not the rule.

An additional consideration may be that the percentage difference in price between a 4-bedroom house and a 3-bedroom house is often much smaller than between a 3-bedroom house and a 2-bedroom house. This means that, should the next little one come along, you are unlikely to experience a big difference in your mortgage instalment.

Summary

We hope that the coming year will be an opportunity to realise your dream of owning your own home. A mortgage is a serious commitment, so you’re likely to have lots of questions. Luckily, you can ask them to the experts in the field – your first consultation with our advisors is always free. It’s a great opportunity for you to check your creditworthiness and make sure it’s a good time for a mortgage. You are more than welcome!

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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