Would you rethink buying now as a first time buyer?

[trrk]

If you were a first time buyer would you rethink buying now? We are desperate to move out of our current rental before our new baby needs her own room but really concerned about rising interest rates and the possibility we’ll lose money if we buy now and the market takes a downturn in the next bit.

It is pretty unlikely you will lose money. And you will be paying off a mortgage and slowly owning somewhere, rather than paying someone else's mortgage. So I would say definitely go for it, just don't overstretch yourself and perhaps think longer about the area and type of property you buy if you're worried about a downturn.

I agree compeltely with @SD25. I don’t think you will lose money overall but just make sure you can afford the prepayments.

Better to get a fixed rate mortgage now than in a few years time. Rates are only going up.

Thanks for the advice! We do have a bit of uncertainty about future income as I’m on a fixed term contract which currently expires shortly after my mat leave which is also making me wary. That is just the nature of my current job (and has been for 10 years). I may look for a more stable job towards the end of my mat leave but it may result in a drop in pay and will have to subtract childcare costs no matter what. We could lower our upper price cap but it’s already hard to find suitable places in our budget now as Cambridge is a pretty expensive market.

You won't lose money long term. Even if there's a bit of a dip coming up it always picks back up eventually. In the meantime you'll be paying to own rather than rent.

If you can afford to I'd buy ASAP before interest rates get higher, and get a fixed rate locked in.

Agree with this

There’s never a right time.

If you wait, interest rates could go up, and mortgage offers may become harder to come by.

Also, you’re paying rent now. Don’t know how much you pay, but say it’s £500 per month, ie. £6000 per year. If you live in a house for five years, it’s unlikely to de erase by £30k. Even if it decreases by £15, you’re still £15 k.(although I do appreciate there are additional costs to home owning).

My son got a five year fixed mortgage at beginning of year. Since then, there’s been a few interest rate increases, which would have cost him £50+ per month (£300+ per year) had he waited.

If you look back on previous threads people have been asking this question for years. There seems to always be a sense of there could be a down turn at any minute. We bought in 2007 at a peak and then house prices did drop hugely a year later but we didn’t need to sell and now 15 years on we’re selling a double what we paid. My friend also bought in 2007 and lost massively as she had to sell due to a relationship breakdown.

Yes so long as it's a long term thing rather than something you are hoping to make a quick buck out of, a house (to live in, BTL is slightly different) is one of the most sensible places to put your money. The housing market does fluctuate but people always need places to live so it always has stabilized over time... maybe now is not the best time to overextend yourself with borrowing at the absolute top end of your affordability range esp if you think your income might drop in future but I wouldn't wait to move!

Prices may or may not drop a bit. But you are paying off equity if you own the house.

Rental prices also may go up or down, but you are surely in a worse position if you say renting regardless as you are not building up amy equity?

I felt so bad for my son and his fiancée buying their first house this year, but they are philosophical about it and happy with the 5yr fix they've taken. Both feel they are better paying for their own home than someone else's..

I've said this before on this type of thread.
I bought a small flat in 1988 in the London suburbs for £65k. Sold it in 1995 for £38.5k. It didn't get back to its 1988 price until about 2001.
Yes it's now worth well over 200k, but U'm afraid prices can go down and stay down for an extended period.
I know the market is completely different now, (my mortgage rate went from 12.5% to 17.5% in one day 😳) but the belief that property can never drop significantly for an extended period is a myth.

What is the nature of your purchase? If it's a one bed flat you'll need to resell in two years, then no it's not necessarily a good time.

If it's two bed or more, in an area you don't see yourselves moving from for at least five years and will see you through primary years in terms of schooling then do it.

Once you are on your feet and settled ) hopefully) financially, try overpaying your mortgage slightly. Even £10 a week can make a big difference.

Even if there's a slight fall in prices, you'll pay off some capital so won't necessarily be worse off, especially if you get ahead overpaying.

If your income is variable and you may have another maternity leave I'd fix for five years as you don't want to be trying to remortgage in two years when interest rates are say 5 per cent and you won't be accepted for any decent products.
Get past early years and child care!

You'll definitely lose money renting though because you get none of that back so the real question is what's the potential discrepancy between the two?

We're continuing with our purchase for a couple of reasons;

1. It's still far cheaper than renting and our rental will just keep going up too
2. We're lucky enough to put down a 25% deposit. If house prices drop by more than 25% then I think people have far bigger problems.
3. Whilst this isn't our forever home we're planning to stay for 5-10 years so hope we can ride out the wave.

I'm not an economics expert but I can't see house prices coming down whilst demand still massively outstrips supply. In many areas people are offering 10-50k OVER asking on houses which yes...will likely get devalued by the bank. In which most cases the seller is getting 10-15+ offers so they'll just move onto the next one or the buyer will find the additional money somehow.

unless he fixed for 20 years they will come to him. when he remortgages probably at 4 times the rate he is on now

If you're paying £800pm rent vs £800 mortgage, some of that mortgage cost will be interest (dead money) and there are a lot more ongoing costs associated with buying than renting. So it's not as simple as "buying is cheaper than renting", certainly not initially anyway. As a poster pointed out above, prices DO go down and for extended periods. What you need to make sure of is that you're not overstretched (interest rates are going up) but can ride out any downturns.

Timing the market is sheer luck. I bought in 2019, then covid hit, markets were in freefall, and I thought I'd over paid on turkey. Not so. I would get on and buy in your position as its not just a financial decision, its an emotional one about setting down roots.

I would still try to buy, for two reasons.

1. It means you can't be evicted on someone else's whim.
2. Mortgage payments are generally less than rent
3. Approaching retirement, I have a secure home and won't see myself struggling to pay more and more rent, as my pension devalues over time.

As with any mortgage, make sure you can cover a 2.5% interest rate rise on your current income. If so, go ahead.

@oiltrader. Yes, I appreciate that in five years time he’ll have to pay the increased interest rates, but until then, he’s saving money.

totally depends on situation. If I was at home and/or paying low rent with secure job then I'd wait.
In your situation but although you could wait a bit as rate rises haven't hit the market yet. But future proof so I would try to go for a house that if the shit hit the fan I could stay in forever. And I wouldn't stretch myself, I see these borrow 7 x your income ads, crazy imo.

unless he fixed for 20 years they will come to him. when he remortgages probably at 4 times the rate he is on now

but there is an advantage of knowing it's coming & preparing for it. Overpay, safe & push for better pay b

sorry I typed pretty incoherently there but hopefully you know what I mean 😆

sun is in my eyes!

Although if he can overpay he should as much as possible so when he comes out and if the rates are higher its negated somewhat because the interest will be on a smaller amount. Which is what my plan is as I have another 3 yrs until my fix ends

If you live in a house for five years, it’s unlikely to de erase by £30k. Even if it decreases by £15, you’re still £15 k.(although I do appreciate there are additional costs to home owning).

Of course it can. And far more than that.

There's a recession hurtling down the track.

OP what's your deposit, I wouldn't go for less than 80% because prices could drop