Page 3 | Is this a bad time to buy a house ?

Salinger26 · 2022-09-29T20:56:21+00:00

We are getting ready to buy our first home but not feel comfortable due to interest rate and property crash rumors. Any suggestion on this ? I am spending my days in Rightmove and feeling overwhelmed.

KangFang · 30/09/2022 12:45

I think this is the peak of the market.
House prices are about to drop.
I would not buy for at least 2 more years.

DashboardConfessional · 30/09/2022 12:48

cloutneerbeout · 30/09/2022 12:43

Part of the attitude here is that the British have a very odd attitude towards renting and think it's vastly inferior to owning, even though there are actually loads of advantages. I've owned before, and I honestly find it less stressful renting. We will own again at some point, but I don't want it enough to buy in this market.

Probably because they don't want to be paying private rents on a pension.

We'll be mortgage-free at 55. After that, the mortgage money will go towards retirement. If we split up after that, we'll sell and buy a flat each.

BlueMongoose · 30/09/2022 12:51

cloutneerbeout · 30/09/2022 12:43

Part of the attitude here is that the British have a very odd attitude towards renting and think it's vastly inferior to owning, even though there are actually loads of advantages. I've owned before, and I honestly find it less stressful renting. We will own again at some point, but I don't want it enough to buy in this market.

It's not odd when rents are higher as a proportion of income than in those other countries, and protections for tenants here are far, far worse. Countries where people are keener to rent typically have rent/service charge controls, and stricter rules about the maintenance of rented property and how safe/large/well built it is, as well as a lot more in the way of tenants' rights. Here you can darn near rent out an insanitary cupboard clad with polystyrene and wringing with damp and charge a fortune for it, or evict a good, quiet tenant you've had for years and who always paid their rent on time if you can get a few quid more rent on airb&b.

onthefencesitter · 30/09/2022 12:52

cloutneerbeout · 30/09/2022 12:43

Part of the attitude here is that the British have a very odd attitude towards renting and think it's vastly inferior to owning, even though there are actually loads of advantages. I've owned before, and I honestly find it less stressful renting. We will own again at some point, but I don't want it enough to buy in this market.

I am a home owner and I once posted a thread asking if home ownership is overrated cos actually in london its only very slightly cheaper than rent and now would be more expensive than rent if I wasn't on a fixed rate mortgage (due to expire in 2024); plus requires a big investment. I was slaughtered. My viewpoint is that there are advantages but its not the 'be all and end all' and its not always a smart decision to buy.

I think I will buy in the next few years and will take a hit to my own flat so that I can buy a bigger flat for a lower price.

BlueMongoose · 30/09/2022 12:54

To the OP, I think that unless I was paying a fortune in rent more than the mortgage rate I'd be paying, or had another overriding reason to buy right now, given that now that the rates have already gone up and I wouldn't get a cheap fixed rate mortgage, I might at least wait a few months and see which direction things seemed to be going in.

PlntLady · 30/09/2022 12:55

We completed on our house this year, sale started just before xmas 2021.we paid 10k over asking. FTB and everyone told us we were mad! Interest rate of 2.49% fixed for 5 years. Everyone told us to wait until we could get a better rate. Same houses on the same street even this week going up for 50k + above what we paid.
If it to live in a bit more long term & if you can find a house you are happy with at a mortgage you are happy with just go for it. If the prices drop for a bit then just continue to live in your house until they come back up.

onthefencesitter · 30/09/2022 12:57

BlueMongoose · 30/09/2022 12:51

It's not odd when rents are higher as a proportion of income than in those other countries, and protections for tenants here are far, far worse. Countries where people are keener to rent typically have rent/service charge controls, and stricter rules about the maintenance of rented property and how safe/large/well built it is, as well as a lot more in the way of tenants' rights. Here you can darn near rent out an insanitary cupboard clad with polystyrene and wringing with damp and charge a fortune for it, or evict a good, quiet tenant you've had for years and who always paid their rent on time if you can get a few quid more rent on airb&b.

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But it also means that you are tied into paying the prevailing interest rate of the day. I have been overpaying £1000 every month in preparation for higher interest rates so I know whats it like to pay £2000 for housing every month and it wouldn't be too much of a shock. But a lot of people wouldn't be able to afford it when mortgage interest rates are 8%. People say that they should have stress tested etc etc, but how many people could have afforded a 3 bed terrace as a first time buyer in most areas in the uk while also stress testing for doubling mortgage payments? While paying childcare. The reason I can do this is because I am 30, with no DC yet and bought a flat with 15% deposit!

at least if you rent, you can move to a cheaper place easily or move back with parents. If you own the place, you are obliged to pay back the full mortgage even if your property value falls 30%.

This would be the real reality for many people.

BlueMongoose · 30/09/2022 12:58

onthefencesitter · 30/09/2022 12:52

I am a home owner and I once posted a thread asking if home ownership is overrated cos actually in london its only very slightly cheaper than rent and now would be more expensive than rent if I wasn't on a fixed rate mortgage (due to expire in 2024); plus requires a big investment. I was slaughtered. My viewpoint is that there are advantages but its not the 'be all and end all' and its not always a smart decision to buy.

I think I will buy in the next few years and will take a hit to my own flat so that I can buy a bigger flat for a lower price.

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Thing is, at the end of 25 years or however long the mortgage runs, you live rent free, just paying to maintain the property. If you rent, you're paying rent forever, including when you're on a pension. And when there is inflation, rents go up and mortgage payments tend to go down towards the end of the mortgage, even if interest rates are high, esp if you can overpay a bit in the better times when you have a little spare money.

onthefencesitter · 30/09/2022 13:03

BlueMongoose · 30/09/2022 12:58

Thing is, at the end of 25 years or however long the mortgage runs, you live rent free, just paying to maintain the property. If you rent, you're paying rent forever, including when you're on a pension. And when there is inflation, rents go up and mortgage payments tend to go down towards the end of the mortgage, even if interest rates are high, esp if you can overpay a bit in the better times when you have a little spare money.

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If it was about retirement, everyone would just buy little terraced houses in cheaper areas of the uk for 200k. We could probably afford to buy that in cash in a few years even if I rented. I don't really want to live in those areas though, but a lot of people probably don't mind. But they don't buy in the areas they want to retire in, they buy in the areas that they live in because they want to own the house they live in.

cloutneerbeout · 30/09/2022 13:03

For us, a modest three bedroom terraced home in an area we would want to live in (for me I need to be relatively central as I can't drive for medical reasons) is about 500k. Even with a 20% deposit (which we have), we'd be looking at a 400k mortgage and repayments on predicted interest rates at minimum £2400 a month. Even at previous interest rates a mortgage would still have been slightly more expensive than renting for us.

These are choices for us - we could move further out of the city and get a similar house for maybe 50-100k less, but that would mean being somewhere where the only facilities within walking distance are an off license, a tesco express and a launderette. I don't want that. I would rather rent.

If I thought prices were going to rocket up again then I'd buy. But I don't think they are. I think they will drop. If they don't drop, I think they will stay the same, leaving us no worse off than we would have been anyway.

cloutneerbeout · 30/09/2022 13:06

Put bluntly, if we are in for a recession, I want my money in the bank where I can access it, I don't want it all tied up in an asset I can't get rid of.

DashboardConfessional · 30/09/2022 13:06

onthefencesitter · 30/09/2022 13:03

If it was about retirement, everyone would just buy little terraced houses in cheaper areas of the uk for 200k. We could probably afford to buy that in cash in a few years even if I rented. I don't really want to live in those areas though, but a lot of people probably don't mind. But they don't buy in the areas they want to retire in, they buy in the areas that they live in because they want to own the house they live in.

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What do you mean, where they want to retire? I grew up in a nice Yorkshire village. My mum and dad retired 10 years ago, living in the same house, same village. If they really wanted they could do a Lifetime mortgage to pull out a load of equity.

Why assume people will move area when they retire?

onthefencesitter · 30/09/2022 13:14

DashboardConfessional · 30/09/2022 13:06

What do you mean, where they want to retire? I grew up in a nice Yorkshire village. My mum and dad retired 10 years ago, living in the same house, same village. If they really wanted they could do a Lifetime mortgage to pull out a load of equity.

Why assume people will move area when they retire?

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Sure my mother in law lives in London and would definitely retire there. She did buy her house for 100k though and when she bought there wasn't such a huge gap between london and the regions!

My point was I don't think people buy so that they can keep a roof over their heads during retirement. If that was the case, i should buy a little maisonette in manchester for 200k for my retirement and buy in cash. Mortgage free and would be half the cost of my flat in London. Rent in London and earn london wages, could probably rent more centrally for my money. The properties in London/SE are so much more expensive than in the north that many london home owners could buy modest houses in the north in cash that are perfect as a retirement home (so no need to worry if tenants don't pay or indeed no obligation to rent it out). Yet everyday, people buy properties in London and the SE for these high prices.

There is a reason and having a roof over your head for your retirement is not one of them.

MarianneVos · 30/09/2022 13:32

YankeeDad · 30/09/2022 10:40

@MarianneVos If you view your deposit as an investment, then the house deposit earns you a tax-free return: you do not pay tax for the rent avoided by owning the house and not having to "rent" money from the bank for the portion of the purchase price that was funded with your deposit. Whereas if you instead put that money into low-risk investments (bank deposits or short-dated gilts), you will collect interest but pay tax on the interest.

The significance of being a higher rate tax payer is that it effects the portion of the interest that you get to keep after paying taxes. Example: If you have a £100k deposit available but choose to rent instead and then invest that money at 4% (=current rate on a very safe investment, a government gilt), you will earn £4k pre-tax, but as a higher rate taxpayer you will only keep 60% of that, so £2.4k or a 2.4% post-tax return on your money. Whereas as a basic rate taxpayer, you will keep 80% of that, so £3.2k or 3.2% post-tax. And if it[s tax-free (because you have socked the money away in an ISA) then you can get 4.0% post-tax.

Another important variable to look at is the gross rental yields in your area, versus the mortgage rate. If you can rent a suitable home for a low percentage of its value (looking at annual rent divided by house price, so a £300k house renting out for £1k / month would have a 4% gross rental yield) then that would tend to support renting, especially where the mortgage rate substantially exceeds the rental yield. If rents are 6-8% or more of purchase price, that supports buying.

Hope this helps.

Thanks for explaining. I've never looked at property as an investment so that hadn't occurred to me!

vanHalen · 30/09/2022 13:37

Kabalagala · 30/09/2022 12:28

Good luck renting if interest rates go through the roof and all the landlords have to sell/are repossessed

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But it's not so simple though, because it's either your landlord being repossessed due to rising costs or you yourself as a home owner.

DashboardConfessional · 30/09/2022 13:39

There is a reason and having a roof over your head for your retirement is not one of them.

My point was that it's so people don't have to move in retirement.

Kabalagala · 30/09/2022 13:42

vanHalen · 30/09/2022 13:37

But it's not so simple though, because it's either your landlord being repossessed due to rising costs or you yourself as a home owner.

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But surely as an owner occupier I have more skin the game. I trust myself to keep a roof over my head far more than any landlord I've ever had

Onaladder · 30/09/2022 13:50

We are also first time buyer couple and going through the same decision making process...

We decided to buy now (1) bc we were able to lock in a cheaper rate for 5 years ( under 4%) and we are not sure if we can afford a higher rate next year (2) we are only looking at the hottest areas of London (zone 2-3 very in demand areas) so we don't see price dropping badly in these areas - just bc of the complete lack of garden flat stocks... (3) we are renting currently and rent market in good areas of London is crazy and is probably going to be crazier

Having said that you should do a stress test of the property drop of at least 20% and whether you will be in a negative equity in let's say 3 to 5 years at the time of your remortgage

and make sure the area / street you buy on have attractive infrastructure for a resell (e.g., schools, high street, transport etc etc)

Also, negotiate hard right now with the vendors

It is a fear market right now with everyone very stressed (both buyers and sellers) and actually a good market to negotiate, you will see on rightmove a lot of houses reducing prices fast at the moment

Hope this helps

YankeeDad · 30/09/2022 15:51

@MarianneVos rereading my own post, it sounds in some ways crass to refer to property as "an investment" without qualifying that.

A residential property is of course, first and foremost, a home for a person or family to live in.

However, I think it is worth also thinking about any thing that costs a lot of money, where one is hoping to get the money back some day, as being an investment, and therefore considering the risk of losing money against the after-tax return, including value in use, that one hopes to gain over time while owning that thing. In practice, except for pieces of art bought by really rich people, about the only tangible thing for which it is realistic to expect the money back (or more) is a property.

Money is something that you trade away your life energy to get, and that you then trade away in turn for the goods and services you need in order to live, and hopefully also to enable experiences that you want to have.

Thinking about property as also being an investment can then help one to take decisions that ultimately enable one to "trade away" less life energy for money, or to have more of the experiences one wants to have.