The UK economy has slumped into its worst ever recession.
Coronavirus lockdown measures have led to a significant fall in household spending, while factory and construction output has decreased as well.
April to June saw the economy decline by 20.4% compared to the first three months of the year.
Chancellor Rishi Sunak has said that “hard times are here”, warning that many people in the UK are likely to lose their jobs.
The recession has also cast doubt over the property market, causing uncertainty for prospective homeowners.
Is a recession a good time to buy a house?
There are pros and cons to buying a house during a recession.
When the economy is in decline, it does mean that house prices can be lower. This is because recessions lead to a loss of jobs and income, making people less willing to make large investments.
Homeowners who are in financial difficulty may be willing to lower their asking price, or they may be looking to complete a short sale to get out of their mortgage.
Mortgage rates also tend to fall during recessions which, going forward, could make your monthly payments significantly lower.
It’s worth nothing that while purchase prices will be lower, you may need a larger deposit than you would in a healthy economy. This is because banks are less likely to lend large mortgages.
What are the disadvantages?
Fewer people voluntarily put their homes on the market during a recession.
They may wait until the economy recovers and house prices increase, to ensure they get the best possible deal for their home.
This means there will be fewer properties to choose from, and there may be issues with those that are on the market.
If you buy a property and then house prices continue to fall, there’s also the fear you could get stuck in negative equity.
This is when your home is worth less than your mortgage – so even if you sold up, you would still be in debt.
It can take years for house prices to return to pre-crash levels after a recession, so if you invest in a new home, prepare to stay there for the foreseeable future.
This recession may not, however, cause the same fall in house prices.
The coronavirus pandemic has created an unusual economic situation whereby flexible working has prompted many to rethink their living situation.
With home-working becoming more popular, many are looking to relocate to larger properties, further away from the office.
According to data from Hamptons estate agents, 30% of properties sold in the last month were subject to a bidding war.
These homes are also selling for 98.6% of their asking price.