Is now the right time to buy a house?

Britain's runaway housing market is expected to take a dip next year, as the combination of new mortgage rules and the threat of rising interest rates brings house prices down for the first time since 2011.

That may sound like a good reason for house-hunters to wait until prices have dropped before heading out in search of a bargain, but experts say the market is more complex than the headline figures suggest.

According to the Centre for Economics and Business Research (CEBR) the housing market is now at a "turning point". This year the organisation expects house price growth of 7.8 per cent but in 2015 it anticipates a 0.8 per cent decline.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

"Tougher mortgage eligibility criteria, high deposit requirements and concerns about future rate rises are starting to take steam out of the UK housing market," said Scott Corfe, the CEBR's head of macroeconomics.

In London the decline is expected to be even more substantial; according to CEBR, prices in the capital are expected to fall by as much as 2.6 per cent next year.

Figures published this week add to the sense that the market is at a turning point. Average house prices rose in October by 0.5 per cent, after a fall of 0.1 per cent in September, but mortgage approvals dropped by more than had been expected.

Nevertheless, Howard Archer, chief UK economist at IHS Global Insight, told the Daily Telegraph that he was not expecting house prices to fall.

"With housing market activity clearly off its early-2014 highs, we suspect house prices will generally rise at a more restrained rate over the coming months," he said. "Specifically, we expect house prices to rise by around one per cent quarter-on-quarter in the fourth quarter of 2014. We see house prices rising by around five per cent in 2015."

Is now a good time to buy a house?

If there's a chance that house prices are about to fall, it may seem risky to buy at what could be the peak of the market – but experts advise that waiting in the hope of getting what you want for less will not always pay off.

Alan Cleary, managing director at specialist mortgage lender Precise Mortgages, says that for most people the right time to buy will be when they find a house they really love. "If you find a property you like and you can afford it then there is no point waiting in the hope that house prices will fall because it isn't going to happen," Cleary told the Daily Express.

On the other hand, it is even more important to evaluate your finances and avoid impulse-buying second-rate property, as a falling market will make it harder to offload your home if you find you have bitten off more than you can chew.

"There are a lot of bad properties out there that require a lot of work so make sure you know what you are getting into," says Nicholas Ayre from buying agency Home Fusion.

Most advisors agree that the key factor in deciding whether to buy or not is to know what you want and how much you can afford. But there are a number of specific issues that impact on whether it is a good time to buy.

Will house prices rise or fall after 2015?

One reason that buying a house now might be a sound investment even if prices fall next year is the likelihood of significant price rises in the longer term.

By 2019, house prices across the country are expected to grow by 30 per cent, with the greatest boom occurring in the south east of England, where an increase of 37 per cent is forecast.

Housing market predictions do not always turn out to be correct, but demand is continuing to rise and there is no sign of a dramatic increase in the supply of new home, so house prices are likely to rise in the medium to long term. That means that most home owners will be unconcerned if the value of their homes fall by the predicted 0.8 per cent in 2015.

Buyers may be able to secure better prices next year than they can now, but the CEBR says the market will heat up quickly after its brief dip. Bargains may not last for long.

What will cause the dip in 2015?

Several factors are thought to be affecting the anticipated drop in house prices including the upcoming general election, the introduction of a tighter mortgage review process, global economic weakness and the prospect of rising interest rates – although recent economic news increases the likelihood that the first rate rise will come after the election in May.

What will happen to house prices after the election?

That will depend on who wins, The Times says. Nick Barnes, head of research at Chestertons, predicts that "if a Conservative government is in power we can expect the market to settle back into growth mode with average prime values rising by around 5 per cent over the year after flattening during the pre-election period."

But, Barnes says: "If a Labour or Labour/Liberal Democrats coalition administration is returned, this could result in a temporary decline in values as owners and buyers alike wait to see whether the promised tax hikes are introduced."

Is now a good time to get a mortgage?

Another critical factor when considering whether it is a good time to buy a house is how favourable mortgage rates are. And currently, they are excellent. In fact, mortgage rates are close to the lowest level they have ever been.

HSBC is offering to lend to homeowners at a rate of just 0.99 per cent – as long as they have a large deposit to put down. Other lenders have also been cutting their rates in recent weeks.

Why are mortgage rates so low?

A combination of factors have brought mortgage rates down, including the tightening of lending criteria in the beginning of the year, which has reduced the number of customers who qualify.

Mark Harris, chief executive of the mortgage broker SPF Private Clients, told the Times: "Many lenders are behind their targets for the year as a result of delays caused by the tightening of lending criteria in April and are cutting rates in order to drum up more business. Lenders also have one eye on their pipeline for next year so we expect to see a mortgage rate war as they compete for business well into next spring."

If your finances are in good order and you can afford to pay a substantial deposit, you will be well placed to secure a cheap mortgage – and your negotiating position as a buyer will be strong.