Higher mortgage rates have deterred many people from buying a home, but weaker demand could give those still able to move considerably more negotiating power, an expert claims. With fewer buyers competing for properties, sellers may be more willing to accept an offer below their asking price. That means some buyers could save enough on the property itself to offset part of the additional cost caused by higher mortgage rates.
A Buyer's Market
Darryl Dhoffer, founder of Bedford-based The Mortgage Geezer, said buyers should consider the total amount they are borrowing rather than concentrating exclusively on the interest rate. He said: “It is very much a buyer’s market, so I will always try to show people the positive side. There are fewer buyers now because many are worried about mortgage rates and are holding off. You might only be competing against one or two people, so it is prime time to negotiate.”
Dhoffer recently spoke to a first-time buyer purchasing a property for £360,000 after it had originally been listed for £425,000. The buyer had previously been offered a mortgage rate of around 3.4% on another purchase that fell through.
Negotiated Big Discount
By the time they found the new property, the available rate was approximately 5.3%. Although the mortgage rate was substantially higher, the buyer had negotiated £65,000 off the original asking price and therefore needed to take on less debt.
Dhoffer said: “People see the higher rate and immediately think it must be a worse time to buy. But this buyer saved £65,000 on the purchase price. The same property at £425,000 with a lower rate could still mean taking on more debt and paying interest on a much larger mortgage. The rate is only one part of the calculation.”
Establish Monthly Payment
Buyers should first establish what monthly payment they could comfortably afford, before considering how much they want to pay for a particular property, he said. They should not assume that the price displayed on a property portal is the amount the seller expects to receive, particularly if the home has been listed for several months or a previous sale has collapsed.
Existing homeowners may worry that accepting a lower offer on their current property will leave them worse off. However, a buyer’s market may also allow them to negotiate a similar reduction on the home they are purchasing. Someone accepting £20,000 less than expected for their present home could, for example, seek £20,000 or more off the property they are moving into.
Dhoffer said: “If you sell lower, you can buy lower. If you accept £20,000 less on your property, make sure you negotiate £20,000 or £25,000 off the next one. Everything is relative.”
Advice if Moving to Another Area
Homeowners moving to another area could also ask whether their estate agent has branches or linked offices managing both sides of the proposed move. An agent that stands to earn fees from the sale and subsequent purchase may have an additional incentive to help negotiate a workable chain.
However, a cheaper property does not automatically make a purchase affordable. Buyers must account for mortgage repayments, fees, moving costs and the possibility that rates or property values could move in either direction.
Dhoffer added: “There is no perfect time when every part of the market works in your favour. Lower rates can bring more buyers back and push prices higher. Do not be put off by the ticket price you see online and do not look at the mortgage rate in isolation. Work out what you can comfortably afford each month, then negotiate hard on the property.”
