Should we exchange our flat buying contract

[KatyRyan]

Hi, We are on a process of buying an 1.2 m flat, no chain. We are renting at the moment, the flat we are buying will be our home for next 10 year at least. Our job is fairly secure, but won't expect much increasing in coming 2 years at least, maybe some decrease on bonus. So we will under some pressure to repay this large mortgage, but won't have much risk to fail to pay the mortgage. While, we won't be happy of course if our the price drop for 10-20% after we buy it. On the other side, we are also worried, if we pull out at last minute, we might not be able to find another one, and housing price went up. Both my husband and I are mid 30, with one 3y old boy, no planning to have more kids.

We are only waiting for some minor doc from sellers solicitor, then we could exchange. The seller is very keen to sell the property ASAP. So we will have to go back to seller later this month I guess.

So what should we do?

we were looking at moving @MamaJules34 this summer but I'm petrified of losing our jobs &/or paying more taxes so either way less disposable income.

@mochajoes, it has a small private garden, roughly 3*8 m. It is the main feature we like

that's a bonus then

I guess we are lucky that we have a 5 year fix mortgage and my husband won't be affected financially

I'm self employed so think I will be, but I'm not really an earner

I would do it if you plan to stay put

@MamaJules34 that's the thing, we got a two year fix mortgage, so we will have to remortgage in 2 year

Can you transfer the product to a 5 year fix?

@MamaJules34 Maybe, but I will be very upset if we found the value of our property dropped by 20%

I really don’t think that will happen. I had quite a few ‘chats’ before we went through with the house. Banks aren’t lending because valuations cannot be carried out.
If you need a mortgage, definitely follow through now. If not, wait.

At the end of the day, only you can decide what’s right. Lots of differing opinions on MN!

I did what was best for us and I’m really happy with our new house. We got the keys yesterday. Could be risky, but I’ve lived through two recessions and both times the property always comes booming back.

Even in 2008 house prices didn’t drop by 20%, I can’t see it being that bad (think it was 15% then) but it’s what you think that matters. You won’t need a complete remortgage just a deal change. Go with your gut

tbf though in 08 & 09 the government slashed interest rates

Prices might fall in the short term - next few months but expect massive property price inflation beginning in the next 6 months.

1. The government does not want massive unemployment. They are in the middle of Brexit and need the economy to keep going. They need people to have confidence.
2. We have a free floating pound, we can have negative interest rates or de facto negative rates.
3. The government was already promising to tip a load of money into rebalancing the economy.
4. Italy has just announced a €400bn stimulus package - our government can go much further.
5. Politicians may ideologically believe in balancing the books and borrowing prudently however they are also pragmatists who like to be re-elected.
6. We were heading into recession anyway.

The government will create a massive post Covid 19 stimulus package. We will likely see the government print money effectively devaluing the pound, inflation will rise and interest rates will be low. At that point in time you want to own as many assets as you can and have as much debt at possible.

@KatyRyan It looks like you're stretching yourself to purchase this property. If you cannot afford the mortgage payment on your lender's SVR, I would re-think.

@Jonnywishbone There is no free money. You either raise debt - which you have to pay back by raising taxes or you print in which case you actually reduce the value of the sterling and increase inflation. Increased inflation affects everyone cost of living.

You cannot have high inflation and low interest rates. Inflation erodes the value of the money in circulation and therefore, to counteract this, the interest rates WILL have to rise.

Hi I don't think you get my point. The government will purposefully borrow and spend money they don't have - they will inject additional demand into the economy. Quantitative easing previously drove asset price inflation (look at real estate, infra and equity valuations). QE on steroids post Covid 19 will have the same impact on asset prices. The government will continue to hold interest rates down by continuing to buy debt and driving market prices and yes the pound in everyone's pocket will devalue. This is what has happened since 2008.

Real estate valuations were driven by historically low interest rates and "Help to Buy" schemes, not QE.

And you're mixing up two different concepts here. Borrowing is not the same as QE. If you borrow more via gilts, you're going to have to pay that back and that comes out of increased taxation. The "net" amount of money in the system is the same and therefore there isn't inflation and there's no need for raising interest rates to manage it.

And my point was that despite all the QE in the world, which helps prop up the equity and bond markets, house prices cannot make a "bull run" indefinitely because of affordability. Unless we see banks willing to lend at 100%+ LTVs again, which is highly unlikely. And affordability will take a hit because of increasing inflation.

I thought govt had specifically said don’t exchange at the moment? Or is that not correct?

@Sharkyfan is it? Could you share the link? I thought government only ask for no moving, but didn't say anything about exchange

Perhaps it’s more complicated than that, but that’s how I understood it when it was in the news last Friday or whenever it was. But surely your solicitor would advise.

www.estateagenttoday.co.uk/breaking-news/2020/3/new-legal-guidance-for-house-moves-during-the-virus-crisis

In any case I wouldn’t have thought it’s the best time to make such a major purchase/financial decision and it seems likely that no one else would purchase this particular property right now? So maybe best to wait?

@newbie111 , not sure how stretchy we are. Assuming nothing change, buying the property with current price, no pay raise, we can go to holiday twice a year, little one goes to private school, and same saving. So worst scenario happen, housing price drop, interest rate increase; we should still survive, but need to change life style on some area I guess.

But of course, we hope we can make a right decision, which won't put us into the worst scenario. Also, we don't want to keep renting if the housing price increase in 1 year or so.

For now, we tend to ask for a 10% off, just not sure if our seller can ask for the same for the new build they are buying. If they can get some similar discount from builder, I am sure they are happy to proceed. If not, not sure what we should do......

@Sharkyfan thanks! This is useful, we will talk to our solicitor about this when they are asking for exchange

Thinking it like this

Your buyer manages a 10% discount, the only loser here is the bank, 10% less lending

You get 10% discount, again it’s only the bank that loses

You aren’t gaining anything in reality

@newbie111

I would be interested to know why you think global real estate yields were compressed by the UK help to buy scheme and why don't you think there is a relationship between equity/bond and real estate valuations? There are a lot of institutional investors who have made portfolio allocations into real assets because of lower fixed income returns.

High inflation and low interest rates increase affordability not decrease. The real rate of interest on a 3% loan with 3% inflation is zero, whilst you have an asset that is appreciating in value. In a 0% interest rate 4% inflation rate scenario, the real cost of that loan is -4% and the ability to service the loan gets easier as your income increases. In that situation I want to borrow as much as I can to buy assets because I know that the asset will appreciate whilst the debt will become less.

Yes ultimately debt has to be repaid/QE unwound but I think politicians would sooner postpone that situation.

@sharkeyfan I exchanged and completed yesterday.

@GreenTulips well, we don't have buyer. We have sold our house few month ago, so if we get 10% off, it is 100k free money for us