Is now a good time to buy your first home?

It takes a lot to put first time buyers off wanting to buy a home - but after enduring years of rocketing property prices, could the current economic uncertainty finally cool demand?

With inflation at a 40-year high of 10.1%, successive base rate increases to 3%, a slowing economy and the mortgage market still reeling following the ill-received mini-budget, many first-time buyers we've spoken to have decided that the economy is too volatile to buy a home. Others have simply been priced out due to mortgage hikes.

But are they right to hold off? And, if so, when can we expect things to improve?

Here, we take a closer look at the current housing market, and speak to experts to find out what could happen next.

'We are now on standby'; first-time buyers play the waiting game

Linh Phung Thi Thu, a mother of two, is looking to purchase a two-bedroom flat in south London with her husband as their first property. They started looking for somewhere in September, but now have put their search on hold due to the huge increases to mortgage rates.

'The mini-budget changed the whole game for us,' she says. 'We were looking to take out a two-year or five-year fixed-rate mortgage, but the higher rates have pushed us over our budget. We are now on standby, just following the news and the market - but it seems like every day is changing, and the banks are refusing to give out some mortgages.'

She’s not alone. David Hollingworth from L&C Mortgages says many first-time buyers are putting off their purchases, waiting to see what happens next. 

It’s a strategy that might pay off. He predicts that the current uncertain outlook for the housing market, and the economy in general, will lead to a drop in demand and a fall in house prices over the next year or so. 

With buy-to-let mortgage rates also rocketing, he adds we may see landlords selling up and exiting the rental market altogether, releasing more homes that could be suitable for first-time buyers. 

Any reductions in house prices will make buying easier for first-time buyers, as smaller deposits and mortgages will be required, explains Karina Hutchins, head of mortgages at OpenMoney. Unfortunately, a recession could mean more repossessions are actioned, where home owners fail to keep up with their mortgage repayments. 'The silver lining for first-time-buyers,' she says, 'is that these tend to be sold "quick and cheap", making an ideal purchase.'

Will house prices drop?

House prices have been rising rapidly for several years now, but ground to a halt in October, according to the Royal Institution of Chartered Surveyors (Rics).

Across the UK as a whole, Rics found a net balance of 2% of property professionals reporting house prices falling rather than rising. However, looking at the nations individually showed that properties in Scotland and Northern Ireland are still seeing growth. 

This is backed up by new figures from Halifax, which showed the average property value fell by 0.4%, marking the third month-on-month drop in the past four months. 

The mortgage provider says the typical property price of £292,598 marks a five-month low - but it’s still almost £20,000 higher than the average cost of a UK house at around the same time last year.

Data from Rightmove and Nationwide also show prices flatlining month-on-month, and experts expect prices to fall next year amid the rising cost of living and with mortgage rates likely to remain high.

• Find out more: What's happening to house prices?

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Low-deposit mortgages in short supply 

A fall in house prices - no matter how marginal - might sound like good news for anyone trying to get on the first rung of the property ladder. However, things still aren't easy for buyers with small deposits. 

The government’s Help To Buy scheme (which allowed many to purchase with just a 5% deposit) closed to new applicants at the end of October, meaning these buyers will have to try and secure a 95% LTV mortgage. However, the number of these mortgages has fallen by more than half since September's mini-budget.

If you do find a low-deposit mortgage deal - and they have slowly started to return to the market - they're likely to be pretty expensive.

Since December 2021, The Times reported the average rate on a two-year 95% mortgage had increased from 3.09% to 6.59%. On a £200,000 mortgage being paid over 25 years, that's an extra £404 a month to pay. Nationwide Building Society claims first-time buyers face spending 45% of their income on their mortgage repayments as a result.

To calculate what your mortgage repayments might look like, try our mortgage repayment calculator.

• Find out more: How to save for a mortgage deposit

What’s the best type of mortgage for a first-time buyer?

First-time buyers who want to buy now have some tricky mortgage decisions to make. If you choose a fixed-rate mortgage for two or five years, rates will hopefully have dropped when it’s time to remortgage. But these deals are expensive. 

The cheapest fixed-rate mortgage deals are for 10 years, but many first-time buyers don’t want to commit to such a long period.

'People should think about what's important to them,' advises Hollingworth. 'Locking yourself into a 10-year fixed mortgage would feel like quite a commitment for a first-time buyer - particularly if they're looking at a property which is likely to be more of a stepping stone to a larger property as they get older and potentially start a family.'

The alternative is to choose a variable tracker mortgage, where rates fluctuate according to base rate rises and falls. Rob Lilley, Which? Money Podcast producer, recently spoke on the show about his experience buying his first flat in west London. He was recommended to take out a tracker by his mortgage broker because of the attractive rate it offered (base rate plus 0.69%) compared with fixed deals - many of which are over 6%.

Hollingworth, however, says it depends on what a buyer feels is going to happen with interest rates in the future - unfortunately something that no one is able to predict right now.

'As we've seen with the mini-budget, things can change very, very rapidly. Typically, most first time buyers would probably err away from that kind of product and prefer the security that fixed rates give you.'

Key dates for the housing market

It can be hard to keep up with the news, but here are some key dates that could mean changes for the housing market.

The Autumn Statement: 17 November

Chancellor Jeremy Hunt is set to announce the government's plans for the UK economy on Thursday 17 November. He is expected to outline how taxation, public spending and public borrowing measures will fill a hole in the country’s finances. While we don’t yet have full details of what will be included, there’s plenty of speculation and it’s likely some measures announced will have an impact on future Bank of England base rate decisions, as well as the public's personal finances.

Base rate changes: 15 December

At it' last meeting on 3 November, the Bank of England's Monetary Policy Committee (MPC) voted to increase the base rate by 0.75% to 3% in response to inflation hitting 10.1%. Increases to the base rate push up mortgage rates and, with another rise expected to be announced the next time the MPC meets on 15 December, it’s a good idea to keep a close eye on these developments.

Looming recession: ongoing

The Bank of England has predicted the UK could face a protracted period of recession, which could cause a 'credit crunch' that reduces people's options for borrowing.