Should I buy or sell property in a recession?

By SofiaSeptember 10, 2020London's Blogs

Choosing to buy or sell a property is a big decision at the best of times, and during a recession, this decision is made even harder. The UK has been hit with an economic downfall following the impact that the health pandemic has had on the country. In a recession, economic factors and market conditions are heightened which adds even more factors to think about when buying or selling your property.

How does the recession impact buying and selling?

You have to be careful buying into a market where property prices are already falling or set to fall. You could end up in negative equity which means your property is worth less than the amount you borrowed for it. If you then decide to sell the property, you could struggle to cover the money you borrowed from your lender. If you’re in this position, it typically only becomes a problem when it’s time to sell. If you’re not ready to sell yet, waiting might be a better option. Property prices won’t stay low forever so you can wait until the market stabilises to achieve better value.

During a recession, whether you’re buying or selling, you need to be able to weather the market and maintain financial stability throughout. Buying a property with a low deposit initially can be more difficult to sustain costs further down the line, especially where value is rising and falling due to the recession. If you buy with a larger deposit, you may not experience these difficulties. Even if property value falls, it’s unlikely the property will become worth less than you borrowed to pay for it.

The recession can hit first-time buyers harder than those already on the property ladder. Mortgage lenders have upped the rates at which aspiring buyers can borrow which makes it difficult to get a good deal. Young people wanting to get on the property ladder often can’t without having complex mortgage deals and family support in place.

Buyers that have large deposits, financially stable jobs and are taking advantage of the stamp duty holiday are serious about buying. If you’re looking to close on your property soon, selling now could be a good opportunity. However, as the furlough scheme ends in a few months, unemployment could rise once again. Those with job losses or pay cuts may no longer be able to keep up with the costs of buying and be forced to sell up.

Advantages of buying and selling during a recession

Property prices are lower

The value of properties fall during a recession so you might find homeowners willing to lower the asking price if they’re looking to sell quickly. Some homeowners might be doing a short sale to get out from under their mortgage and banks may be selling foreclosed properties which make the decision to buy more affordable.

Rates are lower

Typically, mortgage rates can be lower during a recession. Lenders reduce rates to entice people into buying homes as it’s cheaper to secure a mortgage, thus helping to boost the economy. However, the pandemic has caused quite the opposite to happen. Mortgage lenders are charging higher rates to ensure only those in stable financial positions can afford to pay back the money borrowed.

Attract serious buyers

During a recession, people making the decision to buy in a time of uncertainty are likely to be serious. Sellers can filter out those not seriously looking to buy a property. Instead, sellers can focus on ensuring equipped buyers have the information they need to make a decision about the property.

Disadvantages of buying and selling during a recession

Decreasing value

Some properties whose prices have dropped significantly might be a bargain now but their value may be low in the future. A lot of low-priced properties require repairs and renovation that will cost you in the long run. Be on the lookout for this when looking to buy a cheaper home in the recession as you may end up spending thousands down the line.

Selling when you’re not ready

Recessions can force property owners to sell when you aren’t ready. As the furlough scheme is coming to an end, people may be taking pay decreases or losing their jobs. Being forced to sell up can lead to buyers putting in low bids which are accepted to close quickly.

Longer process than usual

Resources are tight in a recession, worsened by being in the middle of a pandemic. The buying and selling process could take longer than usual with delays caused by business backlogs and slow transactions. Banks and lenders are being even more strenuous to ensure money borrowed can be paid off.

Should you wait to buy or sell?

Waiting to buy or sell after the country is out of the recession may make it a safer environment for everyone involved. House prices could begin to rise again so if you’re a buyer now, this means you won’t be getting the cheapest deal.

If you’re selling, you may be able to get more for your property by waiting but it depends how quickly you’re wanting to close the sale. Delaying the selling process could give you more time to improve the value of your property by making improvements. Renovations, repairs, better pictures and videos will all help to sell the property sooner.

Consider where your employment and income will be as the recession ends. Can you sustain payments if your income has been cut, are you going back to full-time employment therefore bringing in a larger wage, or is your job at risk if your business is struggling?

The truth is, there’s no right or wrong time to buy or sell a property, particularly during a recession. Even more so during a recession heightened by a health pandemic. You have to consider your financial circumstances and the priorities you have either as a buyer or seller. If you’re buying, think about deposits, mortgage deals, employment and income in the long-term. If you’re selling, think about the length of the sales process and the value of your property. Weigh up the advantages and disadvantages of each scenario and which is the best decision for your situation now and in the next few years.

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