Is buying a first home now a terrible idea?

[Edinburghwaverley]

I am 37, in stable employment, and in the process of buying my first home. The house is 7 years old and hopefully energy efficient. I have a 10% deposit and the mortgage should be affordable (as things stand now…..) costing about 27% of my Net monthly income, with a fix for 5 years.

But listening to the news about the economy generally in trouble, I can’t help thinking maybe I’m making a huge mistake. Surely this is the worst possible time to be buying? I’m in a really cheap rented flat. Maybe I should stay put?
AIBU to continue with the purchase?

This is a great question OP.

My friend list her job and nearly lost the house (her, DP and 3 kids). The reason she nearly lost the house is benefits don't cover mortgages.

I am currently self employed and seeking a perm job (even though my income will reduce by around 50%) cos I am concerned about the economy.

If your rent is cheap, I'd suggest staying put. House prices will fall by year end abd if you still feel your job is secure (we are already in a recession) find a house then.

Seriously, things are def going to get worse before they get better. I'm screwed if I lose ny job, my mortgage is a few grand a month, so I'd need to sell up within 6m of losing my work...

I would rather buy than rent. When we rented, it felt like throwing money away with nothing long term to show for it.

So long as you fix the rate now, you will be fine for 5 years at least.

@filo443

But you would have said the same in 2008...my 400K house is now worth over 800K..

No i wouldn't have said the same. My area of London has stagnated since Brexit, it was already an expensive area. There is an affordability issue & much of the market has been fuelled by equity gains as wages haven't grown & moving is expensive. I just can't see your house being worth 1.6m in 14 yrs but you can disagree.

@Booboobagins you can’t categorically say house prices will fall by the end of the year though, nobody can. Things look grim at the moment, agreed. But playing devils advocate, say Putin does indeed have cancer, his rumoured operation isn’t a success, he dies and the Ukraine war is over. Oil and food prices stabilise. The lockdowns in China ease, and supply chains free up. Inflation falls faster than predicted by the BoE and the interest rate hikes the market currently has priced in, aren’t realised. This isn’t a scenario that can be ruled out. It’s a constantly moving situation, in which nobody can say with complete certainty what the outcome will be.

(My personal view, as an economist who works in investment banking, advising corporates on managing their interest rate risk).

personally i think this was coming regardless of the war although that has hugely exacerbated it. I'm not sure we fully recovered from the 08 crisis & then there's Brexit.

The property is a long term investment, a big personal one. You shouldn't really worry too much about the short-medium term unless you think you might need to move again during that time?

But if OP sold after three years and moved she would also pay less for the next house so I still don't see the risk if using a decent sized deposit

This is true. I bought start of 2019 and was bricking it that brexit would reduce house prices.... in hindsight I didn't need to worry did I?

Honestly l, if it's a place you CAN stay comfortably for a long while then I'd go for it.

Maybe look for the longest fixed term mortgage you can find. I did that and was so glad when interest rates went silly. I'm talking about early 90's went 12% plus interest was the norm

How secure is your rental flat? Would it be easy to get another one at the same price?

Agreed, buy if you can. Even if your rent is cheap now, you are not guaranteed it will stay that way- rents can rise- and what if your LL sold the flat and you had to move? The property you are looking to buy sounds that it will give you a better quality of life.
Overpaying is a good idea. DS is hopefully buying ATM (fingers crossed) and he is planning to overpay by 50% of what he is saving on rent.

Buy the house ASAP and hope inflation continues rising. It’ll wipe value off the mortgage super quickly. Otherwise you’ll just be stuck paying increasing rents and never be able to afford to buy.

I wouldn't bank on keeping the cheap rental for long. The tax changes have made BTL really unattractive for the average landlord. They'll be thinking about selling up or putting your rent up.

I would buy and go for a ten year fix that you can port if you decide to move.

If I waited for the right time before I bought my first property a 5 years ago I’d still be waiting. The economy is shit, there will never be a good time.

You need somewhere to live and rent is wasted capital, so although you may pay more on your mortgage than at other times, it won’t be as much as you are paying in rent.
Secure job, fixed rate…. seems safe to me.

This is only a bad time to buy if you plan to sell in the next few years to make more money.
If you are buying a house to be your home and you can comfortably pay your monthly mortgage payments, buying is as sensible now as ever.
I genuinely get the worry with it. DH and I are in the process of buying our first home and the house prices are so high. We had to go 23k above asking, and anywhere we looked, they were all going a good 20k plus above, but buying a home gives you more security than renting can, especially with rent sky rocketing.

Interest rates won’t go too high. They will go up but not drastically because it’s the one thing they can control here; this isn’t usual purchase fuelled inflation that they need to control. Lots of people have over extended themselves in finance and a cost of living rise which can’t be controlled through interest rates while rates still go up would bring the country to its knees completely. They’ll return to a slightly higher rate (3% maybe?).

the unknown op is the rest of the cost of living rise.

This is true. I bought start of 2019 and was bricking it that brexit would reduce house prices.... in hindsight I didn't need to worry did I?

There are definitely flats in South London that have sold for less than the sellers paid a few yrs ago.

Honestly l, if it's a place you CAN stay comfortably for a long while then I'd go for it.

I do agree though

Are you in Edinburgh? Just guessing from your user name.
if so, and if you can afford to buy now I’d go for it. The Edinburgh property market is pretty resilient

We moved in 2008 during the recession. Prices were dropping in the town we were moving from, but stable in the town we moved to. Both the old house and new have continued to increase in price, despite the 2008 austerity, brexit, covid etc.

I would buy now and get a fix. Imagine if in 3-5 years time, house prices have risen beyond your limit, and you’ve squandered your money on rent. Also, If you pay £6000 per year in rent, and you house does falls, say by £2000, you’re still £4000 quids in.

We completed on our first house in August 2008. Immediately in negative equity, on a 5 year fix at 7%. But we waited it out. 5 years later we sold that and bought our current house, in which we now have £160k equity, low loan-to-value and a cheap 10 year fixed rate. I am the same age as you. I'd be buying asap!

With energy prices rising, I wouldn't be aiming to buy a period property. You may end up paying the same amount on heating the place as you do the mortgage!

But definitely buy now. You've got a 5 year fixed rate, get it. That will protect you probably through the worst of the next few years.

Continue with the purchase! The sooner you can start paying down a mortgage the better. But I'd advise you to only buy somewhere that you'll be happy in for a minimum of 10 years, just in case you temporarily end up in negative equity.