Should I buy a home or continue to Rent?

[BroglieBoy]

Hi All,

Some background:
We currently rent a property in South East England and pay a monthly rent of £1600 for a 4-bed detached house.

We are thinking of buying a home in the same area where we are currently renting as they are near to top schools and academies.
A 4-bed detached house in my local area costs around £550,000 to £800,000 even after the recent downturn. We can see many houses now reduced their asking price by £25K to £50K

I and my wife both work full time and have a combined salary of £160K annually.

We have a deposit of £80,000 + additional money for expenses such as stamp duty, and conveyancing.

We are not a first-time buyer.

My Question: Should I Buy or Continue to Rent?
A simple answer I believe based on a very basic calculation suggests it is better to continue to rent( see the image below for a monthly mortgage payment of £2887).
If we bought a house at £550,000 with a deposit of £80,000 at 5.5% interest rate for 25 years - the monthly payment would be circa £2887, Which would be £1200 more than what we are paying for rent today. We can definitely afford this extra payment but the question is should we do it?

The reason we are thinking if we should buy now or within the next 6 months is because we both are in our 40's and taking a mortgage at this age for 25 years will get us near to our retirement. Delaying it by a couple of years will only take us into our retirement. I don't believe the interest rates are going to come down anytime in the near future. So the question is how long could we wait for things to get any favourable for us.

Risk of Negative Equity
I understand the risk of immediate negative equity of buying now when the Interest rates are high and house prices are still falling. However, if we could negotiate 10% to 15% off the current asking price, will it reduce this risk? Plus this will also be our home for the foreseeable future and we don't plan to move for the next 10 years.

Based on the above details I would be interested to find out other's thoughts or if you have any suggestions/inputs or guidance.

Thanks in advance.

I think usually the thing about buying is the security, being able to put your stamp on a property and lower costs when the mortgage ends. Its an emotional decision. I am not sure if you have factored in that rents rise whereas you can fix your mortgage for 10 years if you want, also you will be rent free in retirement. Personally I would rather buy a much for modest property than rent a larger one if I had that choice. FWIW I don't think your kids will mind downsizing slightly.

I come at this from a different perspective I think. We live in the south of Hampshire and bought with a similar deposit but the house was 380k for a 3 bed townhouse. Our mortgage is less than we would pay to rent so in that sense we are lucky but the figures are different.

Positives: Freedom. it’s your own and you can do whatever you want with it. Tear walls down if you want to. Nothing is off limits with decor. You have security later in life and will eventually pay less on the mortgage than on rent and eventually nothing. You are paying for your own future not someone else’s.

Negatives: it’s your own, if the boiler goes, you pay. If the roof falls off, you pay. You are responsible for everything good and bad. No landlord to fund the dodgy bits or the bits that leak or break or fall off. If you want to move it’s not as easy.

It is all about balance and priorities and what you want. Easy to be swayed by others but do what’s right for you. I’ll just chuck my 2p in for my opinion see if it can help in any way. ☺️ There are loads of ways to look at it. Hope that helps 👍🏻

Buy.

Your landlord could sell up at any time and rents are rising.

Properties are taking awhile to sell at the moment so you can put a reasonable offer in and should be accepted.

Questions first: 1) how long have you rented this house and how many rent rises have you had and at what %? 2) does your LL own it mortgage free? 3) how many years have they owned it? 4) is it a property that an elderly relative moved out of? Explanations:

1. if you just moved in and don’t know If a 40% rise might happen next year, this has to be considered 2) I would not want to be in a home where a BTL LL bought it in the last five to ten years; 59% of them have already missed mortgage payments this year (around 9k LLs); 3) whenever I look at a property to rent I now always look at how long they have owned it to ascertain if they are likely to get into financial strife 4) this is important because I believe house prices will fall a lot in the SE, apparently the S and SE are the ones currently being most affected by price falls. If an elderly relative moved out, it may only take a few more ‘house prices fell 1.8% in the last month’ headlines to encourage the owners to sell before its value decreases too much.

I think you will be able to get a house a lot cheaper from the middle to the end of next year and the sensible strategy is to wait, but you really need to (with DC) be convinced you have the best amount of security you can possibly provide your family if you make that call.

My LL outright owns two farms and five rentals and turns over 2m a year just on one farm and is constantly expanding our farm, that’s how I know I have the time to wait (even though I am desperate to leave), this level of security has suddenly become v important to me after four house moves and a brief month of living in a hotel over three years.

NB: if you have decent pensions, mortgage companies will let you mortgage past retirement, but that’s not something I would recommend.

If you have a deposit of 80k on a 550k house, prices would need to drop a further 15% before you would start to reach negative equity. Rent of £1600 per month means paying £38,400 of someone else's mortgage over the next two years.

If you are concerned about the market, no one can give you an answer on what will happen. If it is the amount, can you consider a smaller property, or not detached?

I always think whether you can afford payments is more important than short term market movement.

If a 4-bed detached house in your local area costs around £550,000+

hi chance that your £1600 rent will be raised soon.

my area a 3 beds semi costs around £650-800k, and rent £2200-2700 now

£1,600 sounds low for rent. Is that reflective of market rent?

A mortgage would currently cost you over £2k/month in interest alone. So your rent of £1,600 would make more sense and for you to save the rest in investments elsewhere (assuming little/no capital growth in property right now).

But I expect your rent will rise, sooner or later, to equalise this…

Thanks all for taking time and providing your valuable inputs. Much appreciated.

@KievLoverTwo

1. We have been living in the same rental property for the last 3 years and paying the same price of £1600. We ar expecting the LL will raise the rent coming year by 10%.
2. Our Landlord owns this house outright he bought this house in 1990s
3. I agree, the property prices will continue to fall into next year and mid-next year to early next year will be a good time to buy. However, if I could negotiate 15% now hopefully that should help in some way towards that fall. But you are right if i can't manage a 15% discount then better to wait until next year.
4. In South East England( Berkshire ) the prices are falling but many sellers are still adamant and willing to hold on to the prices and the estate agents still price the house as if it is still 2022.

@MyAnacondaMight @Sylviag yes the rent is low compared to other similar-sized detached properties and we expect it to go up soon too.

@TheIsleOfTheLost Agree.

Then you are in a really good position to wait.

Re 3), I don’t think sellers will get serious about price drops until they have read enough depressing news headlines. House price falls, redundancies, costs increasing. Probably mid next year. You will have to work very hard to get 15% off now. Takes the land registry about 9 months to release full house price data (what they release monthly is a sample of about 8,000) so it will be some time yet til shock figures start appearing in the press.

Personally, as you have a pretty secure tenancy, I would wait. I just wouldn’t want to put the work in if my current home was nice enough to live in.

Have you considered buying a BTL property

Generally, more expensive properties tend to have lower rental yield.

Perhaps you can consider purchasing a property (without mortgage) with a higher rental yield and use the rental income to cover your own rent?

Many Thanks for your input.

Hi we're in the south abd similar ish figures, just decided to buy. Although you pay stamp duty some banks nationwide treat as first time buyers for mortgages abd you get better rates. We decided as interest rates don't seem to be moving anytime soon and the houses aren't dropping in our area abd dye to being mid 40s we should buy now.

Thanks. We are now looking for a house which will be our main residence.

We already have a BTL in the North. It was originally our main residence until we moved to SE 3 years back due to work. BTLs are not worth it anymore with the new regulations and costs involved it's not worth the hassle. Any good opportunity that comes along we would be happy to sell our BTL and just have one home.

Good advice, and as you can`t fix for 25 years the mortgage payments could be a lot higher than 5.5% over the term, renting is much cheaper than mortgage now anyway.

We are in a similar position to you and are waiting. Prices in our area have already come down by slightly more than our rent and we are earning decent interest on our deposit. Even optimists are saying that prices will fall by 5% per year, I suspect it may be more. If so, house price falls will exceed your rent by some margin.

Of course, money is not the only consideration when timing a house move, but from a simple financial perspective, I suspect you will benefit from holding on. I myself will be keeping an eye on the market and the wider economy and can always change my mind if it looks like things are picking up again.

For me, the issue with renting is insecurity. It sounds like you have a good deal with your current place, and they're unlikely to increase rents to a ridiculous level- but there's always the chance with renting that they may want to sell up for some reason, or need an increase in rent etc. If you want to stay in a particular area (especially if school admissions are likely to be important in the next year) then buying is probably the way to guarantee that.

That said, the difference between your potential mortgage and potential rent is huge, and I can see the incentive to wait and see if prices do start to drop a bit.

I suppose for me, the thing to do would be to only look at houses that you really like- if a house you love comes up, go and see it, but don't bother with houses you think would be a compromise, or you don't really like? So take your time looking, and if you do find a house you love, then maybe think about negotiating on price etc BUT also negative equity will be less of an issue.

In your position I’d wait and rent. I am also seeing people pricing as though it’s 2022 but the houses just aren’t selling and some sellers are reducing the prices to reflect this.

With that income and low rent you should be able to save a decent chunk of money each month so as well as potential price drops, your deposit is increasing.

If you’re thinking of potentially selling your BTL at some point you could increase the deposit and save a massive amount on stamp duty as you won’t be purchasing a second home.

I would buy rather than rent if you can afford it. If the interest rates drop you will still benefit from that when your fixed deal comes to an end? You can just fix for a couple of years if you're not sure. Getting a mortgage into retirement is not as easy so I would just go for it if you can.

The FED has just come out and said that the 2% inflation rate is still the target come what may, interest rates are only going up from here, one of the key yield benchmarks just burst through 2008 levels, do not buy property just now folks!

Why don't you sell your BTL property this year if you believe house prices are falling significantly? I would get that sold asap and then you will be in a better position to buy in 2024 with a big deposit in the bank.

https://theintermediary.co.uk/2023/08/santander-increases-icr-calculations-across-buy-to-let/

Now is the worst possible time to be selling a BTL, potential landlords are put off by the cost and new legislation, FTB`ers that might have bought that type of property are now seriously constrained in how much they can borrow.

Absolutely this! Selling the BTL before purchasing a new property would also mean you avoid any Capital Gains Tax from owning two places (although it's a sliding scale).

I'd sell the BTL asap (you'll need to give the tenant notice etc) then get the equity into some investment accounts with decent yield for six months. Then you'll have a much bigger deposit all ready to go next year.

I meant sell it to get the capital out before it depreciates any further @CrashyTime as prices are apparently falling in most areas

The problem is that you can`t just sell property when you feel like it, it is the most illiquid asset you can hold, this property has already failed to sell previously and when people are struggling to get mortgages (or not wanting to take on mortgage debt in a falling market) is definitely not the time to sell, the selling window for this cycle is long closed and there is no way IMO there will be any kind of buying opportunity in 2024, this thing will grind on as all the cheap fixes come to an end and prices drop further.

The fact the property may take a while to sell is even more reason to get it on the market now so there is plenty of time for price reductions if necessary before the money is needed for a deposit when OP wants to buy.