The pandemic year of 2020 has made life much, much tougher for first-time buyers, or even people just beginning the search for their own home. However, paradoxically, the recession that has inevitably followed the Covid-19 lockdown may offer some first-time buyers opportunities that weren't there before.
- It's more important than ever to be able to secure the best mortgage rates – with the help of our guide
- House prices 2020: everything you need to know
Those who hope to get on the property ladder later this year may not be altogether out of luck, provided that their job is stable and that they have a decent amount saved for a deposit. There are ways you may well be able to bag a bargain – but you'll need to make sure that the property you're snapping up has a reduced price for the right reason. Find out how to navigate the world of property buying in a recession below.
1. Repossession sales: what you need to know
Sadly, some of the best bargains for first-time buyers during the current recession will be repossession homes, foreclosure sale homes, or short sale homes, as they're also known. In all cases, the property is being sold because the current owners are no longer able to pay their mortgage and need to move out quickly.
Estate agents do sell properties that are being repossessed, but you're more likely to find one at an auction. The benefit of buying at an auction is that the entire sale, from bid to exchange, can take as little as 20 days. The con here, though, is that once you bid on a property, you enter in to a legally binding contract and have to pay a non-refundable deposit.
If you're prepared to do your research on the property beforehand, and then think and act quickly, this could be a great way to buy a good property at a lower price.
Find out more about how to buy a house at auction.
2. Negative equity: should you be worried?
Yes and no. On the one hand, buying in a recession does put you at an increased risk of negative equity, as house prices may come down even further than at the point of you buying. In practice, though, you are only affected by negative equity if you have to sell, and if you're planning on staying at your current home for a while, you needn't worry. House prices will inevitably rise again. We would advise to be extra-cautious about buying a new build right now, as these do depreciate in value as soon as you buy them, and if you are hoping to move onto an older property as your second home, you may well get stuck.
The best remedy against the potential problem of negative equity is a larger deposit; in fact, this is exactly the reason why lenders are currently asking for larger deposits – to prevent home owners from falling into negative equity.
3. Low house prices: when to be wary
There are situations where a low house price should be a cause for concern. Ross Counsell, Chartered Surveyor and Director at Good Move, said:
'[A]nyone looking to buy their first home during the recession should be wary of these cheap house prices before committing to buying the property. Although it may seem like you’re getting a bargain, not every home selling for cheaper will be a good deal. Generally, the lowest-priced homes will require many repairs that will cost buyers in the long run, so be wary of this when looking to buy a cheaper home in the recession as you may end up spending thousands on big repairs later on.'
A bit of work is to be expected, but avoid houses that require serious structural renovation or have known issues that are costly to resolve.
4. Mortgages: are all low-deposit mortgages really gone?
It has become de rigueur to point out that mortgages for first-time buyers have all but disappeared from the property market, but this simply isn't true, and this goes for 90 LTV mortgages – that is, mortgages with a 10-per-cent deposit. Our own hypothetical search for a mortgage with Habito found several 90 LTV deals, including from Nationwide at 3.24 per cent and Leeds Building Society, at 2.74 per cent. There are fewer deals, but they are there, so don't despair if you can't stretch above the 10 per cent deposit you already have.
Find out more about mortgages for first-time buyers.
5. How to put in an offer on a house
Putting in an offer on a house should always be done in writing; if you are putting in an offer that's lower than the asking price, you need a good reason. Avoid at all costs mentions of Covid or the recession – the seller will almost certainly take a dim view of you as a buyer if you take this approach. Be fair and only point out real reasons why you think the property should be sold for less. Good example include a kitchen that will need to be renovated, a driveway that needs completely redoing, or a lack of amenities close by that will mean you'll have to drive further.
Find out more about negotiating house prices.