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Would you rethink buying now as a first time buyer?

72 replies

trrk · 04/08/2022 10:25

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.

OP posts:
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happinessischocolate · 05/08/2022 18:05

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

How do you work that out?

Surely if inflation is high then people will struggle to pay the rent and the mortgage and are more likely to default ?

Plus they're now predicting 20%

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MrFirstTimeBuyer · 06/08/2022 08:00

Tessasanderson · 05/08/2022 16:48

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.

I am in a lucky position to have a substantial disposable income left even after paying the mortgage, so even a significant increase in prices wouldn't be a big issue.
And if they rose so extremely as to impact me, there'd be riots on the streets by then, so it's not really something I focus on.

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MrFirstTimeBuyer · 06/08/2022 08:02

happinessischocolate · 05/08/2022 18:05

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

How do you work that out?

Surely if inflation is high then people will struggle to pay the rent and the mortgage and are more likely to default ?

Plus they're now predicting 20%

In the short term, yes. But ultimately once inflation starts slowing down, prices of real assets should return to the similar values in inflation adjusted terms.

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Tessasanderson · 06/08/2022 12:43

MrFirstTimeBuyer · 06/08/2022 08:00

I am in a lucky position to have a substantial disposable income left even after paying the mortgage, so even a significant increase in prices wouldn't be a big issue.
And if they rose so extremely as to impact me, there'd be riots on the streets by then, so it's not really something I focus on.

I wouldnt say lucky. I would say sensible. Sounds like you could quite easily afford a bigger house than the one you are buying so are future proofing yourself against the economy as best you can. Hats off to you

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chikagirl · 06/08/2022 13:34

Definitely buy rather than rent if you can.
It's just so much more secure and you have more control.

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CharlieChalkface · 06/08/2022 13:35

I would try and get a fixed rate mortgage now if you can. Interest rates are rocketing up, the longer you leave it the more expensive your mortgage will be. Unless you are able to increase your monthly savings at the same rate as inflation you will soon find your saved deposit will not get you as much house as you could have had if you’d got on the property ladder sooner. Always better to own your own home sooner and be paying it off than renting. Rent money is just money down the drain every month.

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rumplestiltskinp · 06/08/2022 14:29

Yes for a number of reasons. Not the best time to have a liability to a bank that has your home's security tied to it. Unsure what financial burden the green homes targets will bring. Unsure how much the energy costs will be and whether defaulting would be necessary and thus my home (asset) would then be at risk of repossession down the line.

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happinessischocolate · 07/08/2022 08:48

CharlieChalkface · 06/08/2022 13:35

I would try and get a fixed rate mortgage now if you can. Interest rates are rocketing up, the longer you leave it the more expensive your mortgage will be. Unless you are able to increase your monthly savings at the same rate as inflation you will soon find your saved deposit will not get you as much house as you could have had if you’d got on the property ladder sooner. Always better to own your own home sooner and be paying it off than renting. Rent money is just money down the drain every month.

But what if there is a recession and property prices go down?

Is the money you pay in interest on the mortgage not dead money too?

Borrow ÂŁ130k now at fixed rate of 4% means paying ÂŁ41k in mortgage payments over 5 years, but only ÂŁ17k will come off the mortgage as the rest is interest. If the house price goes down you could be in negative equity.

A recession is going to happen, how much property prices will be affected is hard to say as the government are determined to keep the housing market buoyant.

But to say house prices will only ever go up is not true, as many found out in the early 90s

It's definitely not a time to be taking out a big mortgage and pushing your budget to the limit.

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MidnightMeltdown · 07/08/2022 13:38

@happinessischocolate

But you need to remember that with inflation expected to reach 15%, the value of cash is also going down

Presumably OP has a decent deposit saved, which is safest invested in an asset. If there's a blip in the housing market then it will be temporary, but any loss in the value of cash will be permanent.

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oiltrader · 07/08/2022 13:41

MidnightMeltdown · 07/08/2022 13:38

@happinessischocolate

But you need to remember that with inflation expected to reach 15%, the value of cash is also going down

Presumably OP has a decent deposit saved, which is safest invested in an asset. If there's a blip in the housing market then it will be temporary, but any loss in the value of cash will be permanent.

maybe invest in something more liquid than housing!

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MidnightMeltdown · 07/08/2022 14:12

@oiltrader

Nothing better to invest in that your home. It's ridiculous to pay rent when you can pay. Rents are rocketing too!

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oiltrader · 07/08/2022 14:14

MidnightMeltdown · 07/08/2022 14:12

@oiltrader

Nothing better to invest in that your home. It's ridiculous to pay rent when you can pay. Rents are rocketing too!

haha



did you learn about investments at coffee mornings?

look at he nasadaq. nearly doubled in a couple of years. can cash out in minutes unlike housing

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happinessischocolate · 07/08/2022 14:22

MidnightMeltdown · 07/08/2022 13:38

@happinessischocolate

But you need to remember that with inflation expected to reach 15%, the value of cash is also going down

Presumably OP has a decent deposit saved, which is safest invested in an asset. If there's a blip in the housing market then it will be temporary, but any loss in the value of cash will be permanent.

Why is it safest in an asset when that asset may go down in value.

ÂŁ100k cash house deposit is not worth less because of inflation if the prices of houses has gone down or stayed the same.

If interest rates are going up maybe the best place to put it is in the bank.

None of us know what is going to happen over the next few years, I just find the attitude of investing in property because it will only go up in value naive. Especially at a time of high inflation, and a looming recession, which will see people losing their jobs and then homes due to being unable to pay the mortgage.

BTL landlords who rely on the rent payment covering the mortgage every month are going to be in trouble too when it takes months to evict someone who has lost their job and can't pay their rent.

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rainingsnoring · 07/08/2022 17:21

@MidnightMeltdown - the value of houses is likely to fall. Depending on what happens, it is possible that the fall may be very significant and that the 'asset' would lose value far more quickly than cash in high interest savings. It may or may not regain value in real terms. As a country, we need to stop thinking of houses as an asset and a way to make money. They are homes first and foremost.

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blueberrysummer · 07/08/2022 17:45

People always say that mortgage rates will be higher when you come to buy etc etc, but unless you're locking in for 5/10 years, your mortgage will go up either way. Everything suggests house prices are going to fall. A cheaper mortgage for a couple of years for buying now will not outweigh a 15% drop in value and an expensive mortgage for the rest of your term.

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flowersandsunshine · 07/08/2022 19:23

We're would-be first-time buyers and will probably be waiting before buying till at least next year, as it seems clear falls are coming - where we are, some reductions are already apparent but greedy sellers are unenthusiastic about catching up with reality. As although asking prices are falling a little, interest rates are rising faster.

For example, there's a property near us we viewed yesterday. It ticks our boxes but we only viewed it yesterday though it's been on for months because it came on at a price 50K over the top of our budget and over other similar houses locally that had sold locally earlier in the year. The sellers finally reduced the price by 25K about a month back and still got no interest. This week, they reduced it by 50K.

Had it come on at its current price when it was first listed 6 months ago, we would probably have put an offer in. But because interest rates have gone up a lot in the last 6 months, a mortgage would cost us about 10% more now than it would have done then. So we won't buy now unless that 10% extra cost to us is priced in. And if interest rates go up further, as seems likely, I'd expect those to be priced in too.

The housing market always takes time to turn round - it's like a tanker. We can see falls are coming locally because the number of properties on the market is rising and the number going under offer has shrunk to a tiny number. A huge turnaround from just 6 months ago, when every property had a bidding war and offers over. We're seeing lots of reduced notices where we are (Home Counties) but this isn't turning into price falls that Halifax and Nationwide etc will pick up in a few months - because even at the reduced prices, FTBs like us are staying away. And houses that don't sell don't feature in the indexes.

It's only when sellers who have to sell start to accept they need to reduce prices further, that those house price falls will show up in the stats. Until then, it will continue to be a bit of a stalemate. I imagine though that the sharp hit to the cost of living over the winter will speed things up about - if you're freezing and can't afford to eat, it will look less appealing having all your capital tied up in your house. And fewer buyers will be in the mood or have the ability to overpay for houses.

Remember, those on this thread telling you that prices won't fall aren't FTBs. They're owners, and may well be unrealistic sellers trying to kid themselves that prices will never fall.

I think estate agents may also try to speed price falls along - I know they are worried because they've taken to calling ME regularly and spamming me with daily emails listing every property for sale. A big difference from a few months ago, when they had no need, as every property was oversubscribed. Estate agents only make money from sales when things actually sell. Which isn't happening right now.

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Blossomtoes · 07/08/2022 19:39

Remember, those on this thread telling you that prices won't fall aren't FTBs. They're owners, and may well be unrealistic sellers trying to kid themselves that prices will never fall.

They’re also too young to remember the housing market in the early 90s when thousands of people were in negative equity and many houses were repossessed. I was a FTB in 1991 and I refused to even view a lot of houses because I was adamant that I wouldn’t benefit from someone else’s misfortune and wouldn’t consider a repossession. I’m very sad to say that I fully expect that situation to be replicated very soon. This feels worse than it did then.

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SweetSakura · 07/08/2022 19:39

I would, but with a few conditions

  • that it was a house I was planning to stay in for a fairly long time - and wasn't going to outgrow quickly
  • that we had a longish fix on the mortgage - that way if nothing else it's better than renting because you have certainty for 5-10 years as to your housing costs.
  • that I had job security and/or insurers against loss of earnings
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wonderstuff · 07/08/2022 19:46

High inflation does lead to higher interest rates, but it also means the value of your loan decreases more quickly. I would absolutely buy now, but I would factor in being able to afford at least a 1% interest rate rise, even if that meant moving further out. Cambridge is pricey but moving towards Peterborough is presumably still much cheaper?

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flowersandsunshine · 07/08/2022 20:07

wonderstuff · 07/08/2022 19:46

High inflation does lead to higher interest rates, but it also means the value of your loan decreases more quickly. I would absolutely buy now, but I would factor in being able to afford at least a 1% interest rate rise, even if that meant moving further out. Cambridge is pricey but moving towards Peterborough is presumably still much cheaper?

That only works if pay rises even vaguely keep up with inflation, which sadly doesn't look likely to be a thing at the moment.

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Blossomtoes · 07/08/2022 20:54

Cambridge is pricey but moving towards Peterborough is presumably still much cheaper?

Bad idea. Cambridge house prices are much more resistant to market falls. Property in Cambridge kept its value far more than neighbouring areas in the 90s. I live between Cambridge and Peterborough and am kicking myself for not buying in Cambridge.

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Stormyforcast · 22/04/2023 23:56

I brought last summer as ftb and wish id waited to be honest.

I'm planning and saving already to minimise damage of negative equity... As i can't afford to move again so soon.

I'm desperatly hoping the falls won't be more than 25% as then I'm in negative equity but can see it's possible to be at least that.

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