Will buying a new house a year later prove to be a cost-intensive investment?
Or will it be worth the wait as you can grab the chance to get a profitable deal?
The problem in the given times that we are in today is that neither can you be sure about fluctuating house prices nor be certain where the mortgage rates will be in a year. Additionally, the varying factors affecting your decision of buying a new house also tags along.
To cut short the dilemma around your home buying decision, we have not only thrown light upon the plausible risks of waiting to purchase a property but have also explained its several influencing metrics.
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Why Buying A New House Later Can Be Risky?
Buying a home later in 2022 can increase the probability of heftier mortgage payments as house value tends to escalate comparatively.
Even the developing areas in the outskirts and satellite cities are growing rapidly. The quick commercial and residential urbanisation of such areas is a prominent reason behind the fast upscaling of house prices, interest rates, and the real estate market.
For instance, if you are buying a new house for Rs. 60,74,086 in Gurgaon with a fixed interest rate loan at 6.7% for 20 years as the repayment tenure, you have to pay Rs. 46,005 as a monthly principal and interest payment.
But if you decide to purchase the same property after a year, you cannot be certain that it will be available at the same price or the interest rates will be similar. Therefore, buying a new house right now will be a better option than waiting for the prices to come down.
This is also because the property prices, along with your purchase decision, depend on several crucial factors, as elucidated below.
What Factors Affect a House Buying Decision?
People are always eager to buy a house. The only catch or what keeps them waiting is affordability. But affording a home doesn’t only mean rich bank accounts. Property affordability is a crucial juncture governed by several factors, such as DTI (Debt-to-Income Ratio), lifestyle, mortgage rates, market value, etc.
Here are the following factors that affect the affordability of buying a new house.
Rising Real Estate Market
The real estate market has four sub-sectors: housing, commercial, hospitality, and retail. In 2021, the real estate market saw substantial growth due to lower interest rates and properties with reduced prices. But the most significant demand was seen for housing or residential properties.
Current reports even suggest that the home-buying trend increased by the end of 2021. Therefore, it can be concluded that the Indian real estate market will only increase in 2022 along with the price, mortgage rate, and other miscellaneous factors.
Price
Considering the pace of the development across the metropolitan cities and their neighbouring suburban areas, there is no surety of a price drop in the real estate industry anytime soon. Another factor influencing the price of residential properties is the post-pandemic effect. The real estate market only started to grow in the first half of 2021. And with this, the demand for affordable properties has also escalated.
For example – Mira Road East was the most transacted location in Mumbai in the first half of 2021. Almost 4,410 properties were purchased. This shows how price meets the affordability of the buyers and why they chose Mira Road East out of all locations in Mumbai.
Debt-to-Income Ratio
The maximum DTI (Debt-to-Income Ratio) allowed for a home loan is 40% in India. The Debt-to-Income ratio helps in determining whether you, as a borrower, can make payments on a monthly basis or not. If there are chances that you might fail, the home loan will not be provided.
Therefore, lowering your debts, securing a good credit score and earning a higher income will portray you as a financially stable person. Your balanced DTI ratio will help you proceed further with buying a new house.
Economic Outlook
Real estate prices and their fluctuations cannot be predicted accurately. Whatever the prediction, there will always be a variation between reality and preconceived estimations. However, realtors are contemplating that the demand for buying a home will rise soon, which may further influence the expansion of the home loan market between 2021 and 2026 by 22% in India.
Since the interest rate depends on the home loan market expansion and the house value is directly proportional to the buyer’s demands, mortgage rate and house prices can be estimated to rise during this timeline. However, as witnessed, the percentage has not varied much or dropped yet at the start of 2022.
Interest Rates
Mortgage rates play a crucial role when buying a new house. Therefore, determining monthly interest and repayment years is a mandatory step. As discussed above, the expansion of the home loan market will lead to the rise in mortgage rates which eventually will increase the overall payable price of your property.
For example – If you buy a house for Rs. 70 lakh now, the EMI will be Rs. 49,414 with 6.7% interest rate. But if the interest rate becomes 7.0%, you will have to pay Rs. 51,101 as EMI for the same house.
Therefore, the increased interest rate will further heighten the total payable amount. If the total payable amount with 6.7% was Rs. 1,42,69,405, then with 7.0%, it will become Rs. 1,47,17,148. So, you will have to pay Rs. 4,47,743 extra.
Lifestyle
Your lifestyle indeed determines the choice made by you. And, it plays a mandatory role when it comes to financial planning for buying a house. Hence, if you have a costly lifestyle, make sure to subtract it from your budgeting or calculated EMIs for repaying the mortgage of your new home.
Bottomline
We understand it is impossible to gauge the perfect time of buying a house owing to varying circumstances. But one thing is for sure: house prices won’t drop anytime soon. And all the affordability factors discussed above, from DTI to interest rates to the real estate market, prove that waiting to buy a new house can be risky.
However, if you have already completed all the calculations in finance management, and have secured a good DTI, pull the trigger and become a successful first time home buyer in early 2022.
And, in case you haven’t figured out the plan for buying a new house, then squareyards.com can assist you. The team of experts will manage your down payments and mortgage rates to give you your dream house hassle-free.
