Is it a terrible time to buy your first home?

[llamazoo2]

After a quick calculation we’d be paying almost 500£ more on the very same house we are renting right now, if we had a mortgage on it. Our rent is fixed and tenancy secure for at least three years from April

Have an AIP and a 5% deposit ready but reluctant to act due to the forecasted repayments which seem eye watering. A house valued at 200k repayments are 1100 a month and that’s on a 30 year term. 35 years only comes down by about 50£.
Would be about 28% of our net income which seems worryingly high to both of us. Prices remain high around us and houses don’t seem to be selling as fast as they were

Should we wait or will it only get worse?

The OP is not being told to ‘rent forever’. They are being told the market is falling, interest rates are just starting to bite, and if they buy now they will be in negative equity immediately.

Renting is ideal in come scenarios, and not in others. Today, in their position, it’s better to rent for a further 12 months to increase their LTV. Prices are not going up, there is nothing to lose.

Yes of course you should buy. When it comes to property the present time is always the best time. Yes the mortgage will be high but just fix for two years only. At least you will be secure in a property.

Considering the news again this morning that house prices have dropped yet again it's seems appropriate to be cautious.

We are looking to buy currently but are making sure we do not overpay and are comparing closely to the 2020/2021 type price to decide our offer.

I think it’s a good time to buy - we’re buying our next house at the moment (sold a flat last winter), and got a low offer accepted in a town which has had a mad property market last couple of years. Yes rates are higher than they have been but they’re returning to a historical average. We’re taking a longer term (33 years) to reduce monthly payments, and then will overpay where we can. I don’t think rates will drop much from now for the foreseeable. Nothing wrong with renting but at least you’re starting to create an investment when you pay a mortgage.

Although I will caveat we are buying with a 20% deposit. I’d be more cautious at a lower deposit %

It's reasonable to say that it's very difficult to time the market.
But it's not correct that there is never a bad time to buy. The OP only has a 5% deposit. It's very likely that she would be in negative equity by the end of the year if she were to buy now. She has a secure rental and the cost is not going up, plus she would be paying £500/month more if she bought the same house. No one has suggested she rents for the rest of her life but that she waits for now and monitors the market as we are towards the start of a (likely significant) decline in prices. We are also in a very unstable time financially so many other things could happen apart from house prices falling.

Oh my God - tell me about it. I was walking along, minding my own business, and a random stranger told me they thought my house was worth only half what I'd paid for it. Suddenly I was in negative equity! I didn't know what to do. I couldn't breathe, I had to sit down, came over all faint. Had a right little panic attack there and then.

Then I remembered .... "negative equity" doesn't exist. It's an imaginary concept. Like bogeymen. It doesn't physically hurt and doesn't need to adversely affect your life at all. The only thing that exists is a real loss in that very rare situation that when you actually come sell, you sell for less than you paid. And that hardly ever happens. And even in the rare instances that it does, by the time you make the accounting adjustments for the rent saved (less interest paid on any mortgage and interest forfeited on any deposit) the amount you'd have to lose on a subsequent sale would have to be extremely large for you to have been worse off. But it hardly ever happens, so there's really no need to worry about it.

@Silverblue1985

Personally, I would buy when you find the right place, can afford to and feel ready to. The markets will always go up and down and if you want to live somewhere longer-term you can ride out anything.

Yep, just about to post the same thing when I saw your comment. Assuming the OP wants to buy a home for the long term rather than a short term investment, then buy whenever you find the right house for you at a price you can afford.

Don't try speculating on prices or interest rates going up or down - most speculation is nothing more than guesswork and luck.

Except if you lose your job, or your fixed rate mortgage expires and you are underwater and have to in to the SVR, or you get divorced, or you need to move for work, or you can’t afford higher mortgage costs!

Then negative equity is all that matters.

Good advice

Another update from the school of economic illiteracy.
You had better give your advice to all those who lost their homes and had to sell at a loss after the crash in the early 1990s. I suspect they may have something to say about your assertions that negative equity doesn't exist and is entirely irrelevant.

Except context matters. First they lost their jobs. And the reason they lost their homes wasn't because someone else didn't want to buy it (clue ... it would already have been up for sale in that scenario and they'd have lost it anyway). They lost their homes because entire industries collapsed and no-one could get a job. Losing your job and not getting another one is very bad for keeping your house. Someone thinking it's worth less than you do doesn't make the blindest bit of difference.

If inflation keeps going up it will inflate away the real cost of your mortgage. Even if house prices stagnate (that is a drop really).

I bought at the very start of the 2008 financial crisis. It was a good move even though in 4 years the house only went up around £10k we also had the equity we paid off. We then moved again using the equity but no further cash. Our house now is worth nearly 5 times the 2008 house.

Sadly the Land Registry data doesn't go back further than 1995, but there is 28 years of house sales data publicly available for download. And there's some great web pages that allow you to browse the dataset by region or postcode.

The proportion of sales where a house sold for less than the owner had previously paid for it is tiny. Absolutely miniscule. Statistically irrelevant.

The point about re-mortgaging is nebulous too. All existing mortgagees have a mortgage already. It's already been stress-tested. They may suffer an opportunity cost of not getting as good a deal as under differing conditions if they tried to remortgage, but they won't lose their house.

"I don't think 28% of net income is scary. "

Isn't that good? Isn't the advice usually no more than a third of your income?

We would be very happy with 28%. If we were to go to the max we can borrow which to get a house that actually meets our needs then we are looking at 45%

Yes that was always my understanding. Ours is pretty much bang on 1/3 of net income.

Are you suggesting that people won't lose their jobs?
Job losses are lagging indicators. There is a recession coming (I think de-growth but anyway). Job losses are one of the last things to happen.
Apart from that, we have had blow ups in LDIs, the collapse of several banks and the BOE issuing warnings about the shadow banking industry.

To your other point, again, you need to take inflation into account (and purchasing power too) when comparing what homes were bought and sold for. It is nonsensical to compare nominal values.

Bear in mind, though, that even though the rent may be cheaper than a mortgage, each year you have the mortgage you are a year closer to owning your own house, at which point you will pay only the house's running/maintenance costs from then on until you sell or die, also you are much more secure, and can change the property to suit you more easily.
You may be better waiting for now, if prices in your area are falling, and mortgage rates high, but kep a very close eye on prices and rates, you don't want to miss the boat altogether, as some did who waited too long during rising prices due to listening to the 'buying-is-always-wrong-crash-is-coming' fetishists. Prices always go up and down. You just have to pick the right time in the cycle for your own situation.

It does exist. And it can be awful. But not everyone who has it ends up homeless. Many who had it and were able to stay put weathered it. And some of the problems in that time were due to endowment mortgages, rather than negative equity. Just as I suspect the interest-only ones will be the next time-bomb
Property ownership is a complex situation, I'm afraid.🙁

I do think net job losses are quite likely over the coming months - but I don't think they'll all be in the same geographic areas, and so won't have quite such an impact on asset prices that are location-based (i.e. houses). But even so, if someone loses their job and can't keep up the mortgage payments, the reason for them losing their house is because they lost their job, not "negative equity".

Negative equity describes a situation where an arbitrary benchmark used to estimate a likely selling price for a house is lower than the actual mortgage debt outstanding on that house. Imagine that 'negative height' is a term that is similarly used to describe the difference between the average height of people on the 7:42 to Waterloo this morning and the height of any shorter-than-average individual passenger. That difference may go up or down depending on the other passengers travelling each day. It doesn't mean that anyone is getting shorter, or that any individual passenger's suit no longer fits them though. That is not to say that no people ever get shorter - but it remains true that most people grow for a while and then stay the same height for most of their lives. It also doesn't mean that average height isn't a useful parameter for businesses to track - tailors and buyers for retailers might want to know this sort of thing, and they might make decisions about how many L or XL trousers to make/stock based on this. Still doesn't change the height of any passenger though, does it? Same as negative equity doesn't tell you anything about the ability of any single mortgage holder to keep making their payments. And where there are some that can't make their payments ... it's losing their job that causes this, not the negative equity they may (or may not) be in.

We are about to buy for the first time, the house was advertised at £450 last year but has accepted £375. If we were to rent for two years that would £24,000 in somebody else’s pocket. The rates are high now but I’d rather be paying off my mortgage now rather than somebody else’s.

Negative equity does exist. If a person loses their job and they’ve bought recently and house prices are dropping (as they are around the world currently) then chances are they will become a forced seller.

Forced sellers will sell at market prices that may be less that they owe on a mortgage, hence negative equity actually being a thing.

If forced sellers drive values down (through having to sell at any price) like to ‘we buy any house’ type companies, repossession etc then that in turn even makes the paid for boomer demographic house values in the same street go down, even if they’re not selling and won’t ever notice until they’ve passed on from this mortal coil

Let's look at it ... line by line.

If a person loses their job (so it really does all start with job losses ...)
and they've bought recently (so not all people who lose their jobs, then)
and house prices are dropping (so not at all times, then)
then chances are ... (so still some unexplained variability - which would be absent if there was a causal relationship. So a weak correlation, at best, right?)
Blah,blah,blah (no different to what I said - definition of negative equity being house valuation lower than mortgage debt)
If forced sellers drive value down (so still not sure they actually do, is that what I'm reading?)
that in turn makes even the paid for boomer houses values go down (huh? where did this magic leap come from? No causation, no correlation, just a bold unsubstantiated assertion of purest wishful thinking)
even if they’re not selling (absolutely not! There's no price discovery at all if they're not selling. It's all hypothetical. Schroedingers house price.)
and won’t ever notice... (are we getting metaphysical now? If a single tree falls in a forest does it even make a sound? If nobody notices values change, can we even be sure it happened?)

I could use the exact same argument to suggest that when someone loses their job and their house is repossessed, all the other house prices in the street would go up as the area now becomes more desirable because there's no unemployed layabouts littering the place. No need to wait for actual sales to prove this theory ... simply stating it makes it true. I wouldn't actually argue this ... because it would be both rude and completely bonkers. But it would be equally valid (and actually better supported by empirical evidence over the last twenty years, too). But still bonkers.

There is absolutely no reason why the price that someone else paid for one house would directly influence what the next person will pay for a different house. There is simply no causal relationship between the transactions. Different people, different times, different houses. The only thing that truly counts is when losses are crystallised in the circumstances where successive sales of the same property see the later sale being for a lower price than the earlier one. And that hardly ever happens.