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    • bobobski
    • By bobobski 15th Oct 16, 9:52 AM
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    bobobski
    Benefits of "starter" home?
    • #1
    • 15th Oct 16, 9:52 AM
    Benefits of "starter" home? 15th Oct 16 at 9:52 AM
    Until now my plan has been to save desperately for approximately 5 years before I can afford my "ideal" (still in a cheap area) house and that assumed the market didn't continue to rise at 8%-10% per year as it has been (*cries*). That would be house that in today's money would be worth approximately £325k.

    Various people have suggested that I buy a "starter" home, around the £250k mark in today's money (there really isn't much for less around here). Given that my "long term" plan was 5 years, and the earliest I could achieve this "short term" plan would be about 2 years, I question whether it's worth it. What with moving costs, SDLT, agents' fees and not much time to pay down the mortgage, my dodgy maths suggests that I would be no better than if I'd just waited, continued renting and saving, and sticking with Plan A.

    Now my head hurts and I thought I'd turn to you lovely chaps to offer your own experiences. Is a "starter" home worth it and, if so, under what conditions?
    #86: Save £12k in 2016: £7,792.18 / £10,000 (77.92%) | #[ ]: Save 12k in 2017: £0 / £12,000 (0%)
    House deposit by 31/12/2020: £10,763.60 / £60,000 (17.93%) | Emergency fund by 31/12/2020: £294.91 / £5,000 (5.89%)
Page 2
    • exiled_red
    • By exiled_red 15th Oct 16, 9:31 PM
    • 108 Posts
    • 76 Thanks
    exiled_red
    I think that from your original post it sounds like your plan isn't working, the property prices are going up faster than it seems that you are able to save to get your ideal house. Is the 5 years still a realistic timescale taking this into account? If so then keeping with your current plan seems reasonable, but if the rise in house prices means that you are never getting closer to achieving your goal then you need to look at other options.

    If you are currently renting then a starter home will enable you to 'save' extra money as you are gaining equity rather than paying rent. If property prices continue to rise, as an owner you are also benefiting from this as well. Obviously there are costs to home ownership compared to renting you have to deal with repairs etc and the costs of buying and selling. I think you need to work through the maths on this, to see what your best options are.
    • PasturesNew
    • By PasturesNew 15th Oct 16, 9:40 PM
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    PasturesNew
    With a 2-5 year plan go for it now. That way you've got a home you know is yours - and if your situation changes for the worse all you have to do is keep making the payments and you still get to live there without seeing your "dream first home" slip away from you. This could be the case if you hold out/wait/save and then lose your job, or be under threat of redundancy, and/or have to take a lower paying job.

    Once you've a key to your door, any door, you're "safe" in the knowledge that (so long as you keep making the payments) nobody will come knocking to get you out - and no boss can spoil your day by saying "we're considering redundancies" and have you dangling on a string for 6 months until you find out you're safe.

    It'll also help you to realise what you want/need from the bigger place in about 5 years' time as you'll have discovered new niggles you never even knew existed before to watch out for.
    • bobobski
    • By bobobski 16th Oct 16, 6:32 AM
    • 398 Posts
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    bobobski
    Some interesting ideas on here, thank you.
    From the sound of it you are better off staying put - much as i like cycling I'd prefer to walk to work than cycle and location trumps size any day of the week as you can make more efficient use of space but you cannot change a neighbourhood. However moving closer to work would not be so good if the work place is not such a nice place to live - my workplace is out on a suburban business park near the ring road and the nearby houses are nasty barratt style hell holes!
    Originally posted by boliston
    This is true - on my (5 minute) walk home on Friday I was thinking how much I'm going to miss this when I buy! The town centre is completely unaffordable so when I do buy, whether at the "starter" or "dream" level, it's going to involve some sort of commute. But I'd be much happier doing that for a house I love rather than a crappy flat that I don't.

    The benefit is in your title. It's a "home". Your own little castle where you can escape from the world. Decorate as you wish. Change the layout, the bathroom , the kitchen to suit your own requirements. Now matters more than the future. Anything could happen over the next few years that changes your plans.
    Originally posted by Thrugelmir
    Definitely a good point, but if the idea is to live in it for 3 years (already less than I've been in my current rental) and sell it on, I think I'd be loathe to spend any money on it unless I knew it would improve my return. But the "home" aspect is the main reason I want to buy at all! With just me and no plans to have children, I can't see myself moving too many times in my life so the investment side of it is less important. I just want somewhere I can fit an American-sized fridge/freezer

    A 50% increase in price over 5 years, when salaries have been increasing by <3% per year. Do you think that trend is to continue at the same pace?
    Originally posted by kilby_007
    I hope not!

    Would you consider buying your starter home and renting a room to a lodger?

    It's not something everyone would want to do but it would help redress the extra cost of paying a mortgage.
    Originally posted by Contessa
    I would if I could afford a two-bed. Unfortunately round here I'd be lucky to get a one bed rather than a studio for £250k.

    I think that from your original post it sounds like your plan isn't working, the property prices are going up faster than it seems that you are able to save to get your ideal house. Is the 5 years still a realistic timescale taking this into account? If so then keeping with your current plan seems reasonable, but if the rise in house prices means that you are never getting closer to achieving your goal then you need to look at other options.

    If you are currently renting then a starter home will enable you to 'save' extra money as you are gaining equity rather than paying rent. If property prices continue to rise, as an owner you are also benefiting from this as well. Obviously there are costs to home ownership compared to renting you have to deal with repairs etc and the costs of buying and selling. I think you need to work through the maths on this, to see what your best options are.
    Originally posted by exiled_red
    I did the maths last night with aforementioned maths friend but his assumption was that property prices will stagnate over the next few years (his maths so I let him make his own assumptions). He is in the process of buying a house so is relatively tuned into the property market over here, although that's not to say I agree with him. If he's right and prices rise by 0%, then I'm better off continuing to save on a purely financial basis (and we worked out probably happier too), but if they rise by 100% per year then I'm better off buying somewhere immediately. The reality will be somewhere in the middle but without a crystal ball we can't know where exactly and that makes all the difference. On my assumption of an average of 5% over the next 4-5 years (i.e. a slowdown but not stagnation), I would be a little bit better off buying early, but that obviously involves risk.

    Oh, and yes, my Plan A (save like crazy route) does take into account house price rises, i.e. I'm not targeting £325k but a little over £400,000. I figure, if my estimate is too low and prices continue to rise at 10%, at that stage I can still buy a starter house!

    With a 2-5 year plan go for it now. That way you've got a home you know is yours - and if your situation changes for the worse all you have to do is keep making the payments and you still get to live there without seeing your "dream first home" slip away from you. This could be the case if you hold out/wait/save and then lose your job, or be under threat of redundancy, and/or have to take a lower paying job.

    Once you've a key to your door, any door, you're "safe" in the knowledge that (so long as you keep making the payments) nobody will come knocking to get you out - and no boss can spoil your day by saying "we're considering redundancies" and have you dangling on a string for 6 months until you find out you're safe.

    It'll also help you to realise what you want/need from the bigger place in about 5 years' time as you'll have discovered new niggles you never even knew existed before to watch out for.
    Originally posted by PasturesNew
    Your last point is one I haven't considered before so thank you for adding it to the debate! But you mention loss of job etc - my impression was that it would be better renting in this scenario so there's no bankruptcy risk - is that not right? At least if I'm renting I can move out (with a few fees to pay) and crash with friends, but if I can't afford my mortgage I can't do that. I suppose a relatively important point is that I've only been at my current job for a year, but by the time I can buy (whichever route I go down) I should be into redundancy protection territory.
    #86: Save £12k in 2016: £7,792.18 / £10,000 (77.92%) | #[ ]: Save 12k in 2017: £0 / £12,000 (0%)
    House deposit by 31/12/2020: £10,763.60 / £60,000 (17.93%) | Emergency fund by 31/12/2020: £294.91 / £5,000 (5.89%)
    • exiled_red
    • By exiled_red 16th Oct 16, 9:58 AM
    • 108 Posts
    • 76 Thanks
    exiled_red

    I did the maths last night with aforementioned maths friend but his assumption was that property prices will stagnate over the next few years (his maths so I let him make his own assumptions). He is in the process of buying a house so is relatively tuned into the property market over here, although that's not to say I agree with him. If he's right and prices rise by 0%, then I'm better off continuing to save on a purely financial basis (and we worked out probably happier too), but if they rise by 100% per year then I'm better off buying somewhere immediately. The reality will be somewhere in the middle but without a crystal ball we can't know where exactly and that makes all the difference. On my assumption of an average of 5% over the next 4-5 years (i.e. a slowdown but not stagnation), I would be a little bit better off buying early, but that obviously involves risk.

    Oh, and yes, my Plan A (save like crazy route) does take into account house price rises, i.e. I'm not targeting £325k but a little over £400,000. I figure, if my estimate is too low and prices continue to rise at 10%, at that stage I can still buy a starter house!
    Originally posted by bobobski
    If there isn't much in it based on how you think things are going to pan out then I guess it just comes down to where you want to be living in the immediate future. If there is very little difference then the savings of not having to move and pay fees etc or repairs on the "starter home" might mean staying with your current plan is the better option.

    I would keep checking in on the calculations every few months based on what is actually happening compared to your prediction, so that you know if you are still on track, a faster rise in house prices might mean your dream house is getting further away, while a slower rise (or fall) might mean that you can get it quicker.
    • bobobski
    • By bobobski 16th Oct 16, 10:03 AM
    • 398 Posts
    • 1,024 Thanks
    bobobski
    If there isn't much in it based on how you think things are going to pan out then I guess it just comes down to where you want to be living in the immediate future. If there is very little difference then the savings of not having to move and pay fees etc or repairs on the "starter home" might mean staying with your current plan is the better option.

    I would keep checking in on the calculations every few months based on what is actually happening compared to your prediction, so that you know if you are still on track, a faster rise in house prices might mean your dream house is getting further away, while a slower rise (or fall) might mean that you can get it quicker.
    Originally posted by exiled_red
    Thank you, and yes, will do! I think the most important reassessment will be in c. 2 years when I "should" be able to afford the starter home. But I'll keep it all under assessment - who knows, house prices could collapse! (I've just watched The Big Short...)
    #86: Save £12k in 2016: £7,792.18 / £10,000 (77.92%) | #[ ]: Save 12k in 2017: £0 / £12,000 (0%)
    House deposit by 31/12/2020: £10,763.60 / £60,000 (17.93%) | Emergency fund by 31/12/2020: £294.91 / £5,000 (5.89%)
    • PasturesNew
    • By PasturesNew 16th Oct 16, 10:05 AM
    • 56,021 Posts
    • 321,922 Thanks
    PasturesNew
    But you mention loss of job etc - my impression was that it would be better renting in this scenario so there's no bankruptcy risk - is that not right? At least if I'm renting I can move out (with a few fees to pay) and crash with friends, but if I can't afford my mortgage I can't do that. I suppose a relatively important point is that I've only been at my current job for a year, but by the time I can buy (whichever route I go down) I should be into redundancy protection territory.
    Originally posted by bobobski
    It depends how you view your prospects and luck.

    So long as you feel you can find the money from somewhere to make the monthly repayments you're better off owning.

    When it comes to mortgages, if you're in a position to buy and then get put under notice of redundancy you can't get a mortgage ... and if you're made redundant you can't get a mortgage ... and if you're in a temporary or new job you can't get a mortgage ... and if your new job pays less you can't get the mortgage you could've got last year. So, on balance, any job that becomes "unsafe" can have you waiting around for a further 1-2 years hoping to get back to the position you were in before and mortgageable.
    • moneyistooshorttomention
    • By moneyistooshorttomention 16th Oct 16, 10:55 AM
    • 10,917 Posts
    • 30,687 Thanks
    moneyistooshorttomention



    Your last point is one I haven't considered before so thank you for adding it to the debate! But you mention loss of job etc - my impression was that it would be better renting in this scenario so there's no bankruptcy risk - is that not right? At least if I'm renting I can move out (with a few fees to pay) and crash with friends, but if I can't afford my mortgage I can't do that. I suppose a relatively important point is that I've only been at my current job for a year, but by the time I can buy (whichever route I go down) I should be into redundancy protection territory.
    Originally posted by bobobski
    I don't understand why you think there would be a bankruptcy risk if you owned your own house - rather than renting? On getting a mortgage these days - it's now the norm to have mortgage protection insurance anyway. If the worst came to the worst and that wouldn't cover it - then one sells the house before it gets to the stage of bankruptcy/pays the mortgage off from the equity and then goes and rents until life is on a more even keel again.

    Admitted I'm someone to whom "bankruptcy is not an option/never has been" - but it would be distinctly exceptional for a house not to have increased in value enough that it wouldn't cover paying back the equity and covering the costs of selling it (and that's not to mention the fact you would be paying off some of the loan each month and increasing the amount of equity you had in it anyway). Mortgage payments arent just interest only - unless you were planning on taking on an "interest only" type mortgage - instead of a repayment mortgage. I don't suppose you are in a position where bankruptcy could be imposed on you - ie self-employed and at risk of other people owing you money and causing you to have problems you wouldnt have of yourself?

    BTW I wouldn't assume you could always "crash with friends". Life often doesn't work that way. We've only recently had a thread on here of a man that was doing just that - and the friend gave him 2 days notice to get out (as friend wanted to put up a pregnant cousin and her boyfriend instead).

    EDIT; Yep....that thread is still running at the moment (ie "Facing living in my car").
    Last edited by moneyistooshorttomention; 16-10-2016 at 11:02 AM.
    The unexamined life is not worth living.
    • Planet Switzerland
    • By Planet Switzerland 16th Oct 16, 3:18 PM
    • 57 Posts
    • 35 Thanks
    Planet Switzerland
    A 50% increase in price over 5 years, when salaries have been increasing by <3% per year. Do you think that trend is to continue at the same pace?
    Originally posted by kilby_007


    No idea, I certainly never expected the prices to go up the way they have. The prices started to rocket up when help to buy came in, I thought given the extent of the price rises at the time they'd have to come down again, or at least remain constant, but they've just kept rising. I think main factor in the last couple of years is the lack of properties for sale.


    I went to register with 14 estate agents in September last year, the criteria was simply one bed flats in the local area and none of them had any for sale at the time. One agent in particular said the price we'd be looking at was around £250k. We phoned them back in January/February time, they still hadn't had any one beds for sale the whole time but said we'd now be looking at £300k+. During that period we did look at 2 properties around the £250k mark but they were very small, I later found out one of them started out as a studio but they put a wall in the middle to make it a one bed.
    • moneyistooshorttomention
    • By moneyistooshorttomention 16th Oct 16, 3:36 PM
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    moneyistooshorttomention
    Logic has had me thinking for some years now (certainly the last 3 years) that a combination of lots more people trying to live in the country but not having a commensurate amount of building done (ie because it has to remain pleasant to live in - or what's the point?) basically will mean the Law of Supply and Demand will kick in.

    More people chasing a finite supply of goods and the price of those goods is likely to go up in real terms. Why wouldnt it? Exactly the same applies to houses as that famous "punnet of strawberries" the teacher kept quoting. One person wants that punnet and the price will be the "proper" one. Two people want it and they will compete for it and the price goes up. Ten people wanting what is still just the one punnet and "the sky is the limit" as to what the supplier will charge for it.

    Good to know my Economics O level I did years ago came in handy for something - ie learning that sort of lesson
    Last edited by moneyistooshorttomention; 16-10-2016 at 3:38 PM.
    The unexamined life is not worth living.
    • Davesnave
    • By Davesnave 16th Oct 16, 6:27 PM
    • 20,849 Posts
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    Davesnave

    More people chasing a finite supply of goods and the price of those goods is likely to go up in real terms. Why wouldnt it?
    Originally posted by moneyistooshorttomention
    Maybe because demand isn't the only consideration.

    If the goods are too expensive for people to pay outright for them, then they must borrow.

    If the lenders think the risk is too great, they won't lend, whether that risk comes from price or the % people want to borrow, or both.

    That's not my economics lessons talking, but practical experience of 2008. I had a stack of people wanting to buy my house, but they simply couldn't borrow enough.
    'Only the mediocre are always at their best.' Jean Giraudoux
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