I’m in a position to buy my first home – should I wait for mortgage rates or house prices to fall?

I have been looking for a place on the housing ladder since the beginning of the year. I’ve saved up the deposit I need, but I’m waiting to see if mortgage rates or house prices drop.

House prices I’m looking at don’t seem to have come down much, and mortgage rates haven’t yet reached a level where it’s attractive to move.

I’m currently in a three bedroom apartment and the rent is a lot cheaper than what the mortgage will cost me.

I want to know if it’s a good idea to keep waiting, given all the people in the news and on social media saying house prices are falling or mortgage rates are about to start falling. Does it look like this will happen, and if so, when? Via email

Ed Magnus of This is Money replies: At the moment, starters are caught between two stools.

On the one hand, those who can afford to buy still harbor the same desire to get up the real estate ladder and stop renting.

But higher mortgage rates coupled with predictions that house prices will fall this year will lead some to postpone their plans.

> Find the best mortgage interest rate for you with our search function

Like many of those who slow down, our reader hires. They say this is cheaper than what a mortgage costs them each month, helped by the fact that they’re in a three-bedroom flat.

Due to the sky-high rental costs, however, some first-time buyers will see their monthly expenses drop once they are on the housing ladder.

Whatever they decide, first-time buyers face much higher mortgage and surety costs than in the recent past.

The average asking rent in the UK is at a record high of £1,190, according to Rightmove, while the average starter home has an asking price of £225,000 – also a record high.

According to Rightmove, the average five-year fixed-rate mortgage for someone buying with a 15 percent down payment is 4.81 percent. A year ago that was still 2.59 percent.

Rate hikes: Mortgage rates have fallen after peaking, but seem to have found a level

If our reader took out a £200,000 mortgage at a rate of 4.81 per cent, with a term of 25 years, it would cost him £1,147 per month for the first two-year period.

If our reader had bought a house in the same circumstances around this time last year, it would have cost them £906 a month.

It depends on whether the mortgage interest rate goes up or down what will happen to the Bank of England base rate.

What the financial markets think will happen is reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange one stream of future fixed interest payments for another stream of floating interest payments, based on a fixed price.

Swap rates have risen slightly recently, partly because inflation has turned out to be more stubborn than expected. At current levels, they suggest long-term interest rates will fall, but not dramatically.

The Bank of England, which is targeting 2 percent inflation, is now expected to raise key interest rates (currently at 4.25 percent) further than expected, in hopes of curbing inflation.

A 0.25 percentage point hike to 4.5% next month and a further rise to 4.75% in the summer are now viewed by markets as very likely, with some even suggesting that base rates will rise to 5% this year .

After that, the outlook is less certain, but some are predicting that base rates will fall in the coming years.

The International Monetary Fund (IMF) forecasts that interest rates will fall and may even fall to pre-pandemic levels once the high inflation is over. From August 2018 to March 2020, the base rate was 0.75 percent.

In the meantimeCapital Economics, an independent economic research firm, predicts that the base rate will be reduced to 3 percent by the end of next year and to 2.5 percent by 2025.

Crash? Capital Economics predicts base rate cut to 3% by end of next year and 2.5% in 2025

Ultimately, it is not wise to rely on forecasts and our reader will have to make his own decision based on what makes both practical and financial sense for him.

However, to give our reader the best possible advice we have spoken with Brian Byrneshead of personal finance at savings and investment platform Moneybox, and Matt Thompsonhead of sales at Chestertons estate agents.

Should they wait for house prices or mortgage rates to fall?

Brian Byrnes replies: When is the right time to buy will be a personal decision.

Not so long ago interest rates were predicted to have peaked, while markets are now predicting at least one more rate hike in the summer. Although mortgage rates are not perfectly aligned with interest rates, they are strongly linked.

For expert guidance and advice, I advise you to consult a mortgage advisor as soon as possible. They map out your current finances and advise you on the best mortgage for your situation.

It is usually average mortgage rates quoted in the press, and the best rates available at any given time are often lower than what you see in the headlines.

A good broker will also be able to personally assess the affordability for you, both now and if interest rates change in the future.

This will be a helpful step in helping you decide if now is the right time for you to buy or not, but ultimately this will be a personal decision for you when you find the right property and access the right mortgage.

Matthew Thompson replies: It appears that your property search is very much focused on a particular area where, according to your letter, property prices remain robust.

This situation may not change, so waiting longer in the hope that property prices will fall may have a disappointing outcome.

For example, prices in London are likely to remain robust as there is a supply and demand problem due to limited supply and a growing population.

If you don’t want to wait any longer, it might be worth expanding your search radius to areas where asking prices are more likely to be reduced.

To buy or not to buy? The combination of high mortgage rates and widespread suggestion that house prices will fall this year will convince some to postpone their plans

In addition, it appears that current mortgage interest rates are not actually at the level at which you hope to make a purchase.

While we’ve seen some cheaper mortgage products since the start of the year, there is indeed potential for lenders introducing other packages in the coming months.

It is worth considering that if mortgage products become more competitive, this is likely to further increase demand, which could push up house prices.

We always remind buyers, especially those in no rush to move, that any real estate purchase should feel good.

Your letter shows that your current living situation remains a good alternative for the time being.

Until you feel comfortable, we recommend that you keep a close eye on the market and keep talking to mortgage lenders and your chosen broker.