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.

Thanks again for the tips! We have a deposit of £80k and are looking to buy a 3 bed house (realistically 2.5 beds as all 3 bed houses in our price range have a box room). Suitable houses in Cambridge go for £500-600+ depending on location. Our mortgage payments will be significantly more than rent as our current place is below market rent. However it’s not really suitable as it’s a 2 bed flat with a damp problem in the small bedroom so couldn’t have DD sleeping in there once she needs her own room.

My partner and I are in our early 30s and are looking to buy our first home within the next year. Our approach is to buy something well below our maximum budget and get something that we can stay in for the next 5 to 10 years in an up and coming area.

I do want to point out that renting isn't "dead money". It's not as simple as £x going into equity vs £x going to a landlord. Prices can go down for an extended period of time and that equity can disappear. If life circumstances change it is far easier to find a cheaper place to rent than to sell a house, especially if you find yourself in negative equity. There is also the cost of maintenance and repairs to take into consideration, as well as the opportunity costs of being tied to one place. My partner and I have both been able to move all over (including abroad) to pursue job opportunities. Yes we paid rent but our current salaries and earning potential are far higher than any of his friends that stayed at home and bought a house in their 20s, and the savings we've accrued as a result of our salaries is far more than anything they have gained in equity, even with the crazy price increases.

Just wanted to point that out. I'm not from the UK originally and had never heard the logic of renting being a waste of money until I moved here.

A 600k house with an 80k deposit would worry me to be honest as it's not a great LTV

My answer is different because you’re in Cambridge. The property market is bonkers there and you’re on to a sure thing there whenever you buy. If it was a Lincolnshire market town you might be better hanging on. Cambridge? Go for it ASAP.

No, I'd get a move on it. I don't think things are going to get easier for the foreseeable future. We bought our first place in February and have no regrets at all.

I think comparisons with the 80s are a bit pointless - the world has irrevocably changed. Migration and (relatively) free movement means the market for certain areas - you guessed it, London - are incomparable. There will always be people wanting to live in London for the forseeable. That wasn't the case in the 80s. This sustains prices, even in economic downturns. Even more so, if the UK is performing badly - foreign buyers will target London. Of course if you're buying in Sunderland, your results may vary.

Agree with this. I bought in my early 30, when I could have bought in my early 20s. But I’ve been able to work all over and travel.

before buying a house, we worked out how much we’d pay in rent vs how much we’d pay in mortgage repayments and mortgage payments were less over 2years (we’re not borrowing toooo much) BUT we didn’t account for the amount of work required, the cost of the work having gone up since we budgeted, and the cost of things that weren’t picked in the survey.

AND we keep finding more problems but we can’t just call someone or move (like we could when we rented). AND if your neighbours are awful it’s harder to move.

not to say buying isn’t the right way to go, just that it’s not necessarily ‘dead money’ or just rent vs mortgage

I haven't rtft but would go ahead and buy nowish. I wouldn't go to the top of my budget if I could help it though.
We bought our first house last year and I am very thankful we didn't have to stretch to the top of our range. We fixed for two years so we'll have to see what next year brings.

Depends on how much your mortgage is. Base rate is predicted to be 3% next year, so mortgage rates will be 4.5% to 6% depending on LTV.

Passing on our very sweet mortgage brokers advice to us as first time buyers moving from rental last year who were also considering waiting (thank god we didnt)
If you buy a house you love, and the prices go down, and it might not be quite big enough etc, it might sting a bit but it will be your home, so its not the end of the world -you have a home you love.
if you buy a house you dont love because you see it as an investment, and the prices go down, and its not big enough etc, you will resent it every single day that you wake up and it wont feel like a home.

He was also very much like: There is never a 'right' time to buy a house, but if you wait and the prices go up you will be kicking yourself and you'll still not be on the ladder, but if you you buy now and the prices go down you'll at least be on the ladder ready for whenever they inevitably go back up again.

Good luck!!

OP, it sounds like you're looking for a family home to see you through a decent number of years, so go for it and get on the ladder. Just don't overstretch yourself.

I could have bought in 2020/2021 but didn't because DH was convinced prices were inflated due to stamp duty holiday. Instead we bought as FTB two months ago; our house is a lot smaller than what we could have got 18 months ago.

I've just had a look at 90% ltv 5 yr fix with my mortgage company. I received my mortgage offer mid April 2022 - the best rate available with that lender now would mean my mortgage would be £265 per month more than I am currently paying.

My rent was below market value so I'm paying more now for a mortgage and the house needs work. It's smaller than my rental and we compromised a lot but it is 3 beds. We have 2 DCs so can stay here very long term if needs be. Local primary and senior schools are good. The area is 'nice' with excellent transport links so unlikely to fall Into significant deprivation.

I am slightly concerned about remortgaging in 5 years time because if the base rate keeps increasing our repayments will go up then. However, so would our rent.

post of the year, exactly

Like asking a barber do you need a hair cut 🤐

We were first time buyers last year. It means we are no longer at the mercy of landlords, and so many are selling up now.

@trrk - I would be cautious as a potential FTB at present.
It is very likely that house prices will fall, possibly very significantly, when you look at the economic outlook. If you don't have a large deposit you could easily end up in negative equity.
I totally understand that renting has plenty of downsides too. Perhaps reassess in 6-9 months? If you really want to buy now make sure you don't stretch yourselves and won't need to sell for a long time.

@rainingsnoring, Cambridge is a housing microclimate. Prices have been roaring away there for years and it’s sufficiently popular with so many highly paid jobs on the Science Park nothing’s going to change there in the foreseeable future.

Thanks everyone for the advice! The crazy housing market here is part of our problem as we have been looking since Jan and been outbid several times and lost another due to chain problems. While we don’t have plans to move in the near future we can’t completely rule out needing to move to take advantage of a job opportunity elsewhere, especially if my contract isn’t renewed.

I think I would wait a bit, unless you need to buy now. We were caught by the recession in the early 1990’s. I hope we won’t experience a dip as big as that. But who knows with the interest rate rises, and COL increases, it’s not beyond the realms of possibility. Property will always rise, so it depends whether you are buying a long term home or like we bought in the 90’s a small flat with the intention to move in a couple of years, it took us 11 years to sell and clear the mortgage.

I see. I haven't lived in that area for ages but was aware that prices had rocketed.
Still, if the OP doesn't have a permanent contract and might need to move in the near future, I'm not sure buying in a hurry is a great idea.

I bought 2 years ago after the first lockdown. Everyone was saying that it was a bad time to buy and that prices would fall. The exact opposite has happened. Prices have rocketed and i've paid off a significant chunk of my mortgage with money that would otherwise have been wasted on rent.

If you were living at home rent free, then I would say wait a bit, but if you are paying rent every month, then it's a no brainer. I would buy now and lock into a 5 year deal.

House prices might dip a bit, but they won't fall significantly because the cost of building is so high. The government is well behind target due to the pandemic and labour shortages, and this isn't going to be resolved anytime soon.

Also while high inflation is associated with higher interest rates (if not on a fix), it also reduces the value of the debt. 100k now, won't be worth the same in 5 years time.

Affordability is only the issue. Considering those people from Hong Kong with bags of cash vacuuming the houses and the number of new houses being built recently, the price would never go down.

Would i buy instead of renting? Yes 100%.

With a huge caveat in present times. I would only purchase something that was within my budget based on the certainty that the next few years are going to get really difficult.

If i have a household income that could at the most afford a £300k house at present rate of interest etc I would be insane to go ahead with it thinking i can ride the next couple of years out. I would reduce my budget to £200-250k and accept that i dont have the funds at present for the bigger house. The old addage of getting something at the top of your budget is plain wrong in current climate.

Answer me this, is it better to be able to rent and stay secure over the next few years if the alternative is going to be struggling to feed yourself, heat your new house and at the end of the day lose your house due to mortgage defaults?

I'm about to buy our first house, jumping straight to a 4 bedroom house we plan to live in for many years. Therefore I'm not really concerned about the short term changes in house prices.

With inflation at 10 percent, house prices will inevitably go up over time.

If you dont mind me asking. Ignoring the chance of the house value changing. Have you accounted for, say your household bills going up drastically over the next few years? Food, utilities, fuel etc?

The value of the house now and in the future is, as you hinted pretty much irrelevant to you.