Property prices

[Asian]

Hello All,

We have recently made offer on a house. We did offer the asking price £425000. The surveys are through, no major issues. We are in process of enquiries. We have 10% deposit. We are going for fixed mortgage of 5 years. Considering the current market, it stresses me to think if we would have issues remortgaging it after 5 years. Any suggestions would be appreciated.

What suggestions are you looking for?

Then take a,10 year fix.gives you certainty for 10 years
Then you can review in 9 years time

How much will you have paid down in 5 years time?

Will it be more than 10%? Will you have improved the property at all?

I think it’s pretty unlikely you’ll be in negative equity

It's really difficult to answer this as you haven't given any details of your personal situation nor what sort of suggestions you are after.

If I was a first time buyer with a 10% deposit, I would be wary of buying at present unless I was confident I had offered a competitive price, planned to stay 10 years and preferably had some family support if I ended up in financial trouble.
I would consider finance carefully. Why haven't you fixed for 10 years? How secure are your jobs? Do you plan to have children if you don't already? Would you need to pay for childcare?

@ThankmelaterOkay The property is great condition, 4 bed townhouse, can't make it any better.

@rainingsnoring We already have children, 15 year and 10 year old. Our jobs are pretty stable. The mortgage is still not closed, we are in process. We can still opt for 10 years. This hopefully would be our forever home. I was wondering considering the market should we go back to the seller with a lower offer. I know that be quite embarrassing but not sure what to do.

Don't fix for ten years. All serious commentators are predicting that rates will start to ease back towards the end of next year. Not to 0%, but lower than they are now. That's why two year fixes are now more expensive than 5 year fixes.

Did you have to offer the asking price to secure the property? I'm surprised you couldn't negotiate a discount. But I also think you are unlikely to be in negative equity in 5 years, although you might not have a high LTV to remortgage.

I think the main thing to protect yourself is to build 10% equity through re-payment or overpayment. Then if it’s valued at say £382500, you’re evens. If you need to move you can and if you need to re-mortgage you can, in fact you’d only need £38250 to have 10% again to access mortgages at 90% LTV.

Thanks a lot for your suggestion. We had to offer the asking price, since there was too much competition on this property. It is a 15 year old townhouse, 4 bedroom property, in very good condition. I guess will go for 5 year fixed.

If you go back to the seller now with a lower offer they may well refuse it and refuse to deal with you any more - gazundering is not popular, then you've wasted survey fees and potentially mortgage fees.

This is especially likely if you had to offer asking price to secure it in the first place because of the competition.

Competition, and you won with just asking price?
The seller is already realistic then. It would be a dick move to ask for more off and if I were them I'd reject you and find another buyer.
Banks are the most cautious and them not down valuing the property is a good sign of its worth. If they do, then that's your cue to ask for money off.

If there was lots of competition for the property, it's more likely that it wasn't overpriced and less likely that the seller will accept less.
You may find this video helpful:

and this one:

There is no certainty that interest rates are going down at the end of 2024. In fact, it was recently reported that they wouldn't reduce until 2025. If they do reduce in the next 2 or 3 years (this is absolutely not certain), they definitely won't go anywhere near the zero rates people had become used to.

We’re selling at the moment and if our buyer tries to gazunder us, I will likely put it back on the market. Even if that means loosing our onward sale. It’s a dick move to do it, especially when there is nothing wrong with the survey and there was competition for the house (we had competition for ours too). If our buyers reduce the price, then I’ll be asking the estate agents to make sure they tell any future sellers what the buyers have done.

We will also be going for a 5 year fixed. With the mortgage offer I did a rough and ready calculation of what we were paying over the next 5 years. Our mortgage will be £300K and I worked out the capital will be about £35K over 5 years (not including overpayments). So assuming you pay off about the same (you have a bigger mortgage but lower LTV than us as we’re at 80%), that’ll put your mortgage just less than £350K and if house prices drop by 10% then the house will be worth £382,500. You will still have a LTV of 90%. It’s your forever home so it might be rocky in 5 years (it might not) but generally in 10/15/20 years it won’t be an issue.

Presume you’d never have accepted a gazumper-er in a rising market?

No. We wouldn’t. We told the estate agent we had no interest in starting a bidding war because we know when that happens that people are likely to reduce their offers after. We also got something looked at for our buyers that we didn’t legally have to do, which has come back with a fault and have voluntarily reduced the price. So yes, if our buyers take the piss we will not sell to them.

If you are fixing for 5 years I wouldn't worry too much unless you have overpaid (who would in this market?). If it is a fair price, go for it. The problem with 10 years is not the interest, it is who knows what life throws at you in that time and what the cost is to get out of the mortgage if you need to.

See what happens this week with US CPI.

Fair enough. Markets change. If I’d been waiting patiently for a chain to form and the market cliff edged, I’d consider it tbh.

I would recommend you have an independent do a full valuation. For two reasons - firstly if it comes back with a valuation in line with what your paying then you can relax and proceed feeling comfortable that you haven't overpaid. Secondly if it doesn't match you have an excellent, documented, reason to renegotiate.
Do not under any circumstances feel "embarrassed" to do this. You are making the biggest financial transaction of your life so get it right.
Most people understand now that prices will fall in the short term, but that's not a reason to renegotiate, that is a reason not to proceed. You have to work on the current valuation - not what it might be in two years. All you can do is make sure you are not overpaying in terms of today's prices. Or if you decide, as many think, that in 2 years' time you will be able to get a better deal both in terms of lower prices and lower borrowing costs - then pull out...

How long do you envisage living in the townhouse OP? If you are thinking of moving in a couple of years, act with caution, if you thinking longterm home then it should make the decision easier.

What are your main concerns? Prices falling, interest rates or other factors? As PP have said, should you go back to the vendors and renegotiate they may decide to resume marketing, how would that make you feel?

Ultimately you need to do what’s right for you.

Good luck.

This suggests where housing is more affordable relative to local income. Might be worth a look for those who are thinking of moving to a new area.
Costs to rent or buy relative to income by area

There seems to be a lot of noise that agents are over estimating values at the moment. It's worth spending a little extra time and money to make sure you are paying a fair price imo

propertyindustryeye.com/estate-agents-are-overpricing-by-considerable-margin-new-data-suggests/

Imagine a scenario where a lorry rammed through one of the rooms and caused damage = 10% of the house price.

Would you renegotiate?

Now imagine a scenario where the economic landscape of your region has shifted dramatically, leading to less demand, causing 10% reduced house prices locally.

Would you renegotiate?

Only a fool would have different answers to the above two scenarios.

Thanks everyone for your suggestions. I have decided to get the independent evaluation done for the house and decide accordingly. Really appreciate all your help.

This only makes sense if the house had sat for months, with a summer/autumn 2022 price.
However OP has already stated that it has lots of competition, the 'reduced price' has already been factored in.

Asking price is just that - asking. Some sellers might be sensible, some delusional, we can't assume they're all in the latter group.