Phil Spencer warns against making rash decisions this year
(Picture: Handout)With the UK economy heading for a recession, and the Bank of England warning that it may prove to be the longest downturn since records began, it’s an uncertain time for everyone — not least those considering moving home.
Tomorrow’s Budget may see further turbulence for the money and property markets, with Chancellor Jeremy Hunt set to outline how the Government plans to fill the UK’s £55 billion fiscal hole. The catastrophic mini-Budget set out by his predecessor Kwasi Kwarteng in September sent the pound into freefall, already rising interest rates were hiked further and lenders withdrew hundreds of mortgage offers overnight, throwing the property market into disarray and denting the confidence of many home buyers.
The natural presumption is that the housing market will fall in a recession, but then nobody ever thought that the market could rise in a pandemic — and it did by 25 per cent. We’re in uncharted waters but there are things you can do for a smoother sailing.
Should I even try to buy now?
I don’t foresee a house price crash but I do think we will see a fall. A return to a more stable market would not be a bad thing but the economy right now is experiencing a shock and things feel unpredictable. Don’t do anything rash. I suspect we will all feel a bit brighter come springtime so if you don’t have to move, sit on the fence for a bit. You may be worried that mortgage rates will have risen hugely in six months’ time but if house prices fall a bit, that might balance out the increase in interest rates. In other words, it might cost you more to borrow the money, but you might not have to borrow as much.
Instead, sort out your finances. Secure a mortgage offer now. It will last for between three and six months.
The world carries on in a recession. People change jobs, change schools, get married, have children, get divorced and die — all the things that drive a housing market. If you need to move you could consider selling quickly now, renting through next year then buying when things have settled in a year to 18 months’ time. This also has costs: supply is terrible and rents are rising; moving twice and paying storage fees will add up; and inflation is going to have an impact on money in the bank. But the option is there.
How much should I borrow?
How far you stretch yourself should always depend on your own financial and job security and whether your income is going to rise or fall in the years ahead. For a go-getting, ambitious young person developing their career, their income should increase. I’d encourage those people to buy as well as they can because the property should last them longer. If you’re not confident in your ability to service your debt at the current level or higher over the coming years, then you’ve got to change areas and find somewhere cheaper that enables you to buy at a lower price. In either situation people should still be planning to stay put for five years.
How to buy a recession-proof home
Buy the best
Hunt out the ‘best in class’ homes. That doesn’t matter if it’s a studio flat or a four-bedroom house. The knack is to select the best of each type. Pay attention to the architecture, quality, position and location to determine which is the best property in an area, street or apartment block.
For example, if you were buying a two-bedroom flat, I would suggest that the best in class would be purpose-built rather than a period conversion, with two similar-sized bedrooms. Ideally, one would be en-suite and there would be a family bathroom, too. The best position in a block would be at the top on a corner — dual aspect with no noise from above. And you would want a long lease in a well-maintained, well-managed block.
Size
The square footage of a home is a useful rule of thumb but it’s not an absolute way to determine the value of a property. Just as important are factors such as the condition of the property, the view, or the height of the building it is in. Size does matter but usability and functionality are crucial, too — a good layout will make a small property seem bigger than a larger property with badly configured rooms.
Having said that it doesn’t matter if you buy a studio or a four-bed, don’t discount the earning potential an extra room could give you. The Government’s Room Rent Scheme allows you to earn up to £7,500 a year tax free.
Location
School catchment areas can add as much as 20 per cent to the price of a house in some places, but they should not be the only thing you rely on when buying. In our Move iQ property report, we show catchment areas specific to an individual postcode. This is useful as they can change significantly year on year. Things like class sizes can have a surprising impact — one year a catchment area could spread over 10 to 12 streets, and the next year it could be 50 metres. The quality of the school can also change over time and it could get downgraded by Ofsted.
Don’t make a big decision based on something that may change quickly. If a catchment area is important to you then do everything you can to be well inside it. Equally, don’t pay a premium to live in a catchment area if you will not need that school.
Timing
Buy for five years or longer — I’ve always tried to buy for 10 when I’ve moved.
This is admittedly hardest for young, first-time buyers who might need to choose a home that offers a lifestyle they don’t want yet. A lot can happen for 25- to 30-year-olds in a five-year period. The local pub and the gym round the corner are great now but in five years’ time they might be more interested in nurseries or how good the local school is. But once you are at a point in life where you can plan for longer, try to buy somewhere you will not want to move from for 10 years.
Adding value
Buying something that you can add value to in a falling market is a good idea. However, we’ve seen how difficult and expensive it currently is to do a renovation with the rising cost of materials, delays in supply chains and a dearth of builders. Therefore it is particularly important to strike a balance with the size of project you take on.
