How To Buy A House During A Recession

Many worry the UK may be headed for a recession shortly, and as a result, interest rates have seen a considerable increase. That has a direct impact on the housing market in the UK. While the rates don’t have a direct impact on mortgage rates, when one increases, often the other does as well. The result, of course, means a fairly slow housing market and fewer buyers with whom to compete if you’re in the market for a home. What is a recession in the property market? Has it ever happened before? Is buying a house in a recession a good idea? If so, how do you make it happen? This guide can help answer all of your questions.

What is a Recession In the Housing Market?

If you’re asking “Should you buy a house in a recession,” it might help first to understand what the idea even means. In terms of the housing market, a recession just means a time when the economy gets smaller and fewer people are looking to buy properties. Things slow down considerably, and it’s harder to sell a home that’s on the market during this time.

What are Some Issues Facing the Property Market in a Recession?

If you own a property, a recession in the property market can mean a few different things. First, you might find your home is less valuable than it once was. That’s a serious issue if you don’t have a lot of equity in your home. It can lead to negative equity, which is where the value of the property falls below the price you bought it for. This is typically the situation if you’re buying a house before a recession. In that case, you only have two choices – wait for your home’s price to go up once more or sell it at a loss. The other real problem, though, is that if there’s a recession in the housing market, there’s probably a recession in the economy as a whole, and that could mean that you find a decrease in your income. That’s going to be an issue because it can make it harder to pay your mortgage (especially if it increases thanks to an increase in the interest rates). Naturally, if you can’t pay your mortgage, your lender would have to sell the property to repay the debt.

The other obvious problem is that the cost of a mortgage goes up during a recession, and that means fewer buyers because of those added costs. As a result, sellers often have to lower their asking price to attract people who are interested in buying a house during a recession.

Another potential problem with buying a house in a recession in the UK is obtaining a mortgage. During a recession, lenders tend to tighten the criteria to apply for a loan. That can make things extremely difficult for potential buyers, keeping some from even making a bid on a home in the first place. As a result, some people won’t even think about entering the property market during a recession.

There is one additional serious downside to buying a house in a recession or selling one. If you’ve ever bought a house in a market where prices are rising, you may be familiar with the term ‘gazumping’. This happens when a seller agrees to sell their property to another buyer for a higher price than what the first buyer had agreed to, even after accepting the initial offer. In a recession, though, there’s an opposite to this term – gazundering. This happens when a buyer lowers their initial offer in the days or weeks leading up to the exchange of contracts, leaving the seller in a difficult position.

A Quick Look at Previous Property Recessions

Wondering if this has happened before. How often are people asking themselves “Should I buy a house during a recession?” It happens more than you might imagine. According to Land Registry figures, during the financial crisis of 2008, the average house price in England dropped from £188,657 to £159,340 – a substantial 15% decline in just one year.

However, potential buyers need to note that a year later, the average house price in England had risen to £174,765. That’s a pretty good answer for those asking “Should I buy a house in a recession.” While still 7% lower than two years earlier, the trend of rising prices had resumed. For homeowners, this upward trend would have likely alleviated any concerns about negative equity, as long as they maintained their mortgage payments and reduced their mortgage amount.

So, while recessions have happened in the past, the simple reality is that there’s always an upswing after a recession, though it may take a few years to get there. So, if you’re left asking yourself “Should I buy a house now or wait for the recession to end,” the truth is that if it’s time to sell your house, you should do it when you’re most comfortable.

Are There Homes for Sale During a Recession?

Do sellers still have homes on the market during a recession? Many sellers are willing to stay in the market if there’s a recession, but often the housing market does experience a massive decline in sales during a recession, so not every seller is willing to stick it out through the hardest times. One survey, conducted by eXp UK, found that the UK housing market declined at a rate of 30% in 2022 because of the overall fear of recession among sellers. While a recession hadn’t been declared, the fear of one scared property sellers enough to pull out of the market.

It’s important to note, though, that the decline came right after one of the hottest periods in UK real estate history – the two-year-long housing boom that came from the COVID-19 lockdowns. Those who worked from home wanted larger properties suddenly during that period, and thanks to the Stamp Duty holiday that coincided with it, many people got into the market.

Should you buy a house in a recession? It’s essential to understand that if you’re buying a property during a recession, you may get a great deal, but you may also miss a home you want because it’s possible that a seller may not even be in the market as a result of the recession.

If You Are Buying During a Recession

Is a recession a good time to buy a house? Buying a home during a recession can be a phenomenal opportunity. If you’re interested in finding the right home, there are several things you can do to make sure you have a chance to buy right now. Start by taking a closer look at all of the costs involved in home ownership. Make certain that you can afford not only to deposit the loan, but also afford the monthly payments (even after they increase when your fixed rate deal expires and it moves into a standard variable rate loan). Don’t forget that there are other costs associated with home ownership as well. You’ll certainly want to be able to afford the utilities as well as buildings and contents insurance. Additionally, there will be ongoing maintenance costs associated with your home. Ensure that you have planned for all of these expenses.

The next step is getting your finances in order. You’ll want to be able to show a lender that you have a solid income and a job with some security. You’ll also want to take a close look at your credit score as well. Improving that can help you look more attractive to a mortgage lender.

If you’re in a position where you don’t have good financial stability or you have a poor credit score, a recession probably isn’t the best time for you to buy a home simply because of the uncertainty of the market as a whole. Often you’ll have far more trouble finding a loan if you’re struggling with financial stability or your credit score. While you may believe the best time to buy a house is a recession, if your finances aren’t what they should be, that just isn’t true.

Once you have your finances in order, the next step is to set your budget. Figure out exactly how much house you can afford so you know what to look at when you begin to shop for homes. Remember that most lenders will require a deposit of between ten and twenty per cent unless you qualify for first-time buyer programs. Decide how much you can spend on repayment, and then you’ll be able to begin to shop for a home in your price range.

You may also want to get an Agreement in Principle or a Decision in Principle from a mortgage lender. That allows you to show that you can afford the home when you make an offer on it. It’s essentially a pre-approval for a mortgage. It offers you an extra layer of security in a recession that you will be able to get a loan when you apply for one. Typically you’ll want to take this step before you ever start shopping for a home.

Once you’ve done that, you can begin to look for homes in your price range. Feel free to search online and with local estate agents. As you shop, you’ll want to look for a property with all of the amenities you want including the right amount of space, one that is in a good location, and one that is affordable. When you find the perfect property, have your estate agent make an offer on it. If you’re house-buying during a recession, this is the space where you will want to be most careful, and your estate agent can help guide you on your offer. Do a bit of homework at this point. Find out what similar properties around that one have sold for over the last few months of the recession. Understand how the property you want compares with that number, then decide exactly what you want to offer. You may also want to gather some information about the seller’s situation and why they’re selling the house. House buying during a recession may mean the seller is marketing their home because they’re upside down on their mortgage, and if that’s the case, they’ll need to get a particular number from you before they can even think about accepting your offer. They may also just be looking for a quick sale, and if that’s the situation, you may be able to lower your offer to get the best possible price. Be sure, as you craft your offer, that you show the seller why you’re the best person to buy a house. For example, if you already have a mortgage in principle in place or you’re a cash home buyer, that can be a seriously convincing proposition.

Once the seller is ready to accept your offer, it’s time to move forward. You’ll need to find a good conveyancing solicitor to begin the process of finalising your offer and transferring the property to your name. You’ll also need to go back to your mortgage lender to finalise the paperwork there. You’ll want to consider having a complete home survey as well so that you can be familiar with any issues that are facing the property currently. Once you have your team in place, they’ll begin the process of formalising the sale, and you’ll finally be a homeowner, even during a recession.

The reality is that the process of how to buy a house during a recession isn’t that different from the process of how to buy a house during traditional times, but it’s essential that you keep an eye on home values throughout.

Stay Strong, Even During a Recession

Is it good to buy a house in a recession? A recession can be a great time to buy a property. It’s not a terrible time to be selling a property either. Just remember that if you buy a house in a recession, there are fewer buyers and sellers in any recession because everyone is concerned about the negative impact the recession is currently having on the economy. What’s more, though, is that if you buy a house during a recession, with rising living costs and mortgage rates, there are some downsides to being both a buyer and a seller in this market. You can, however, make the best of this market and buy a house in a recession, and it might just turn out to be the home of your dreams.