Buying now with potential house price crash (BoE)

[BoEbrexit]

I'm reposting this from the Brexit forum, because I just got answers there about prices falling by 90%, or denials that anything will change at all. I hope this is ok. (I don't know all the etiquette here).

Anyway, I'm a FTB and just saw the BoE stuff about being prepared for property price drop by up to 33% and massive interest rate rises. (I've searched and searched, and I can't actually find any proper projections of what effect No Deal would have no house prices.)

I already knew that now is not the best time to buy, but I'm moving to a new area, and I might not be able to get a mortgage in a year or two due to work situation. I may move after four years or so, and was prepared for the fact I might sell at the same price, or even up to 10% less...but one third less would be pretty destroying ! I'm unlikely to go into negative equity proper because of my large deposit, but I don't want to lose all of that when I sell.

My parents don't seen phased, saying I could just rent out and move into rented if prices go down, like they did in the nineties. Because my job means moving around a lot, it maybe some years before I permanently settle somewhere and want to buy forever home.

I think I'd wait, but I have this issue with potentially not being about to get a mortgage later. (I have a fixed term contract on top of my normal work starting soon, and my normal work isn't enough to get a mortgage.)

But still, is it crazy to buy now?

No one can tell you what to do you have to do what feels right for you at that time, I don't think anyone really knows what will happen and equally house prices could rise and you get less for your money. Not helpful but weigh up pros and cons and make your decision that way.

At the end of the day the population is increasing and people still need somewhere to live - whether renting or buying.

How much LTV do you have? How long would you stay in the house? I would calculate (maybe with mortgage advisors help) what your mortgage would look like with an interest rate increase, and what it would look like compared to renting.

If you want to keep the house for a while (5+ years), and can afford the mortgage if it increases a couple of percent then you are probably worrying unduly. If you are over stretching yourself either on deposit or payment, and think it would be likely you'll sell again in a year or two then I question whether it's really a good idea to buy regardless of brexit.

As someone whose buying and selling right now in a buyers market I might add that it's a bit sh*t. If you will be able to afford the forever home in a few years without buying, and that is what you're really shooting for, then just stick with renting and save like crazy

Do your sums - how much extra would you spend on rent if you waited a couple of years versus how much values could go down? How many years would you expect to be in a property if you bought it.

My hunch is that it isn't time to buy somewhere as a short term investment given we don't know what's going to happen in the next year or two. But if it is somewhere you can live in over the longer term, and you're paying a price that gives you room financially, then it might be a good time to buy (and take advantage of cheap long term fixed mortgages while you're at it). There's a fair chance that once the Brexit dust has settled, longer term property prices will start to rise again fairly quickly (particularly if population continues to grow, which all economic models are based around). But the bottom line is that we just don't know, so be sensible and don't overstretch. If you're buying a home to live in, rather than an way to make a quick buck, and you're within your means (and try to get somewhere with room to grow - e.g. a solid 2 bed rather than a flashy studio new build - this will get be you more options to stay out if you start a family or just rent a room out for more income) I wouldn't be put off buying.

Do bear in mind that the information is based on the worst case scenario and the likelihood of it happening is pretty low, something like 1 in 200. If you can afford the property and have some contingency money factored in,then I would continue on. There are lots of people and have been lots of people in the past predicting doom and gloom for decades. You would never do anything if you paid attention to every scaremongering piece of information out there. Treat it as a place to live for the medium to long term.

Sorry, just reread and saw that you think you'd move after 4 years or so. Look at different property value scenarios versus what you'd pay off your mortgage over that time versus what you'd pay on rent over that time. If you are able to save some money over that time and continue to pay off a mortgage, you may be in a position to rent out instead of sell if you needed to (as your parents suggest).

It's a tricky one, but if you're staying within your means and paying an affordable price (i.e. It is not far beyond what you're already paying in rent), it should be beneficial to pay off a mortgage over that time instead provided you have contingencies in place if (and I think that's far from a given) property prices are in crash mode four years from now. Getting something that is also easy to rent or is just good sense anyway (particularly as you may move due to work)

I don't agree with the doom and gloom. I think there will be a gradual correction with small drops due to supply and demand and prices will stagnate for 5 to 10 years whilst inflationary pressures increase raising interest rates and earnings. This will make property more affordable again.

So no, op, I wouldn't buy now. Give it a few years. I suspect the sweet spot will come around 2024/5.

@yazoop @just

I have 40% deposit. Mortgage payments right now are about 230, and I could afford up to 400 - (once nursery funding kicks in). Rent for the same place nicely done up would be 600.

My problem is I don't know if I could get a mortgage later, as I'm self employed and income is rather up and down. I can get a mortgage now because I have this fixed term contract coming up, but nothing is guaranteed after that.

(I'd still be able to afford the mortgage with only my self employed income - but building societies didn't want to lend to me with only that. Hope that makes sense!)

I'd def stay for 4 years. And its somewhere where I could stay long term - until I found a permanent job and wanted to buy my forever home. But I have no idea if and when that would happen...I'm in the arts/ academia if that makes things any clearer. So I wanted a secure base with affordable mortgage until I settle down somewhere for good.

So the Op should wait and pay 6 years' additional rent to avoid stagnating values (not even a crash)? When they could be taking a chunk out of their mortgage while interest rates are historically low (and interest on savings virtually non existent)?

Sorry, I know I sound sarky but I really don't mean to - would genuinely like to know the counter argument here in case I'm missing something?

I bought a house 9 years ago and sold it recently. It sold at a few grand less than we bought it for. I’m surprised there aren’t more people in my situation here on this thread. If we didn’t have a redundancy pay out we wouldn’t have been able to buy another house. If we’d invested our deposit in something else 9 years ago we might have been better off!

OP- from what you've posted, it sounds like a good time for you to buy personally - you've got the fixed term contract stability, it is cheaper than renting and you have a buffer. And with a potentially less stable career path ahead, you could have an asset that many of your peers will struggle to get.

The only thing I'd say is you need to plan ahead for when your employment is less stable. Would you be able to deal with interest rises and would there be issues with getting another deal once your initial term ends? Make sure that you're aware of the type of paperwork freelancers need to show to pass affordability checks etc. You aren't going to know all the answers, as no one can see into the future, but having a think through this stuff before going ahead is useful.

(And a 40% deposit makes your situation significantly less risky than most FTBs)

@Yazoop

Yes I'm confident personally I will still be able to afford mortgage after this contract ends, even with interest rate rise - I could piece together enough work month by month. It would be more difficult to meet rent costs (assuming they don't go down). But like you said, the issue is the paper work and persuading lenders of this, especially as I'm single and have a child. This is why I thought I should grab the opportunity to get a mortgage while I can.

I can see 33% falls but only in areas where prices have doubled since the 2008 crash... mainly in London and the South East.
If you are buying somewhere that hasn't risen much in that time I think a fall would be far less... I would assume you are by looking at the figures.
In 4 years you would have paid 20k more in rent than mortgage.
I would buy in your position.
Not in London though

@Alexa

Yes I agree re London and South East - I wouldn't buy there atm.

This area prices have gone up around 20% since crash, and have been pretty stagnant (small rises) since referendum. Its a university town with decent schools - not particularly desirable but stable as far as I can make out.

If I really needed to sell in 4-5 years I could live with a 15% drop but a third would wipe off most of my deposit .

What area are you looking at.
If you buy at a good price you can limit the loss if prices fall, with a 40% deposit and chain free you are in a great position

The 33% is a BoE stress test for banks and definitely not a prediction, its the worst case scenario for banks to withstand in the event of a big global crisis. If you read their latest Inflation Report its not that negative about prospects.

Having said that I think it would be prudent to only buy being able to withstand interest rates rising to say 5% over next few years and being able to withstand a 33% fall so it wouldn't put you at risk of repossession. I sold before the last crash and bought after it, rented inbetween and invested in cash savings - financially that was the best move but its very hard to predict exact peak and exact trough so you almost certainly won't see maximum gain / loss. Plus I wouldn't do that this time with a family, we got kicked out of one rental with a baby and one year old as landlord wanted to sell (then failed to sell). Would I buy for the first time now, hmm not sure, if it was just financial grounds then no too risky but if it works from a family point of view and I had over a 33% deposit, I could cope with interest rate rises then yes I would assuming could negitiate a good deal and a house I could see myself keeping for c. 10 years plus (so good schools if needed or at least being rentable if I needed to move though you get hit on that now with extra stamp duty if don't sell property one within 3 years). When housing market goes whole economy is likely to go so it gets hard to know what to do with cash - at least property you can use.

It looks like the government is going to start trying actively to bring down house prices. I would hold off until you know more.

www.telegraph.co.uk/politics/2018/08/05/time-conservatives-announce-new-economic-mission-lower-house/

@penguin

Thanks for that - yes, I'm not worried about if they come to some kind of a deal. Its no deal that I think will make things really difficult.

Yes my deposit is more than 33% but wouldn't want to sell and lose all that! In that scenario would probably stay put (there are decent schools) or rent out. The place I'm looking out rents for 500 now (unfurnished and dated). So even if interest rates went up to 7%, rent would cover the mortgage.

@sophie

Isn't that just someone saying they should bring down house prices, not that they will.

BoEbrexit
No, It's someone floating the idea that the government likely to do a U turn, and to start actively trying reduce house prices, rather than trying to prop them up. It is a major shift in thinking.

Well that would be an extremely odd thing for the government to do. Its behind paywall, but the interest rate raise thing was fairly inevitable and overdue.

I know some (left wing) think thanks have been advocating freezing house prices, which doesn't sound too bad. So a conservative government actively trying to bring them down seems very strange indeed.

BoEbrexit This is an interesting quote from the article: "If the Conservatives want to see off Corbyn they will have to stop trying to please everyone and shamelessly take the side of those who want house prices to fall."

cooling the market may make sense but trying to significantly lower house prices makes no sense from an economic or voter friendly point of view. If anything it would stunt supply of housing as people wouldn't want to (or be in a position to) sell?

I wouldn’t panic, just make sure you buy somewhere you can live long term and with some flex in your budget. You need a home whether you rent or buy. And if you get a reasonable length fixed term mortgage rate then you can be certain what that cost will be for much longer than in rented
BOE has been saying it doesn’t envisage interest rate rises above 3% for a long time.

We sold our house a few months ago and it took 72 hours to sell. Market is fine in many areas. People need homes.