FTB, making an offer on new build tomorrow - advice needed please!

Max_Headroom_3

pete96 wrote: »

The government scheme i'm on did only used to be new build, but they have changed it now so resale homes are an option. I see your point about it still being a loan, but it's a very cheap loan as loans/mortgage go, is it not?

Your advice has been acknowledged... thanks!

A loan is a loan is a loan! You still owe it, you still have to pay it back. The "cheapness" only refers to the bit that you have to pay back over and above the bit you borrowed!

You're talking about massive massive debt, one hundred and sixty thousand pounds worth of it, before you even begin to get into all the other costs of buying a house and setting up home!

And you have the grand total toward it of, well, a grand!! :eek:

pete96

ok now it makes more sense, cheers for that explaination, Max! So in other words, to buy now is a big gamble for me.... i would be gamling that when ever i have to relocate/re-mortgage, for what ever reason and however far down the line, that the property is worth what i paid for it or more.

Max_Headroom_3

Absolutely. And gambling that you can actually afford to do what you want to do with no escape route if you can't.

And with very little upside to the gamble. It's extremely unlikely that prices will suddenly recover.

Rent, be happy, live life, save up a decent deposit, get used to the cost of living (it's about three times the amount you ever expect it to be!) and buy when you're ready, know where you're at (in life and financially) and have proper funds available.

pete96

Max_Headroom wrote: »

Absolutely. And gambling that you can actually afford to do what you want to do with no escape route if you can't.

And with very little upside to the gamble. It's extremely unlikely that prices will suddenly recover.

Rent, be happy, live life, save up a decent deposit, get used to the cost of living (it's about three times the amount you ever expect it to be!) and buy when you're ready, know where you're at (in life and financially) and have proper funds available.

You say very little upside... am i right in thinking the upside would be, assuming we could survive (hypothetically speaking) the market slump, get through the other side unscathed, we would potentially be better of having got on the property ladder 1-2-3 years previously (as in getting on the ladder now)?

Another thing, when you say 'get used to the cost of living (it's about three times the amount you ever expect it to be!)' i cant help but think you've taken me for some teenager who's never stepped out of his parents house, is that how you've percieved me?

Incisor

pete96 wrote: »

You say very little upside... am i right in thinking the upside would be, assuming we could survive (hypothetically speaking) the market slump, get through the other side unscathed, we would potentially be better of having got on the property ladder 1-2-3 years previously (as in getting on the ladder now)?

If you wait, you might be neither on a snake or a ladder, if you wait some more, you might be on a ladder. But if you buy now you will be on a snake and you'll have to wait for a ladder to get you to back up, but by the time you find and get that ladder, if you had waited, you would be already moving on a higher ladder.

Another thing, when you say 'get used to the cost of living (it's about three times the amount you ever expect it to be!)' i cant help but think you've taken me for some teenager who's never stepped out of his parents house, is that how you've percieved me?

That was Max. Certainly you come across that way for buying a house, but truthfully, it's probably a generation thing. It has been at least 10 years since anyone had to find a deposit to buy their first house.

Max_Headroom_3

pete96 wrote: »

You say very little upside... am i right in thinking the upside would be, assuming we could survive (hypothetically speaking) the market slump, get through the other side unscathed, we would potentially be better of having got on the property ladder 1-2-3 years previously (as in getting on the ladder now)?

Why?

Another thing, when you say 'get used to the cost of living (it's about three times the amount you ever expect it to be!)' i cant help but think you've taken me for some teenager who's never stepped out of his parents house, is that how you've percieved me?

If I'm honest, it does come across that way a bit, yes.

pete96

Max_Headroom wrote: »

Why?




If I'm honest, it does come across that way a bit, yes.

Why? because i was under the impression, that after 2-3, or how ever many years of mortgage repayments, one would have built themselves up a bit of capital. Now in three years time wouldn't it be nice to have three years worth of mortgage paid off? Is that not a good thing?

If i have come across like that i guess it's not your fault, but for the record, i'm 22 years old and my parents have been living in the USA since i was 17, so i do have a rough understanding of 'the cost of living'..... ITS SUCKS!! lol

Incisor

pete96 wrote: »

Why? because i was under the impression, that after 2-3, or how ever many years of mortgage repayments, one would have built themselves up a bit of capital. Now in three years time wouldn't it be nice to have three years worth of mortgage paid off? Is that not a good thing?

It would be a good thing, but given that you are renting an awful lot of money, you don't pay very much back to begin with, so it can be cheaper to rent a house and save up for your capital. And you need to set the slide towards negative equity which you experience against the capital you do save. The frightening thing is that the capital value swings in a house often make your capital repayments pale into insignificance in both boom and bust years. Of course, if it makes you feel good that you are buying a house, then do it. But at the moment, that is quite an expensive luxury.

Max_Headroom_3

pete96 wrote: »

Why? because i was under the impression, that after 2-3, or how ever many years of mortgage repayments, one would have built themselves up a bit of capital. Now in three years time wouldn't it be nice to have three years worth of mortgage paid off? Is that not a good thing?

In an ideal world, yes. But bear in mind typical mortgage rates with virtually no deposit are going to be in the region of 7%, which on £130K mortgage is about £9,000 a year, or £750 a month. That is just to stand still, paying nothing back, you have to add on the repayments over and above that.

Of course as the capital is paid back, the amount you're paying in interest gradually decreases which means a bigger chunk of your monthly payment goes toward actually clearing the loan, but often in the first few years you're only clearing maybe £1,000 - £2,000 off of your mortgage per year. (I'm sure someone a lot cleverer than me could give you real working examples)

So in two years time you might have repaid £2,000-£3,000 off of what you borrowed (the rest of those huge payments having gone on interest).

Better than nothing of course, and you're on your way. Trouble is, in a falling market you might have paid off £3,000 of your big loan, but your house might be worth £5,000 less. Or £10,000 or £20,000 or £30,000.

Indeed, if a £160,000 loses 35% from todays prices as a lot of people are speculating it would drop £56,000, down to close to £100,000!!! Against that, your £3,000 paid back is going to be pretty insignificant.

These are huge chunks of money and WILL make life changing differences as you get older.

Of course they might not drop any further at all, but all sensible suggestion seems to point to the fact that they will.

Hence you need to be really sure about what you are doing.

penguine

You also need to allow for the very likely possibility that interest rates may go up in the future. The low interest rates of the past few years are historically atypical and if the UK is to attract foreign investment (which given the state of our economy we will need to) then interest rates have to go up. If you come off a fixed rate in a few years this could have a huge impact on your monthly outgoings.

I hope this doesn't sound patronising, but at 22 it's really hard to envisage where you are going to be in 5-10 years' time. If you buy this house you are locking yourself into not just a huge financial commitment, but to staying in one place and turning down all the other possibilities that life might throw your way. There have been 11 years of house price rises in this country, so it's hard to get out of the mindset that you need to get onto the house price ladder as early as you can or you'll miss the boat. That's just not the case anymore. After 11 years of HPI we can probably look forward to 11 or so years of house prices falling or staying level -- that's what's happened in previous crashes. No one knows what will happen -- but you have to think of all the eventualities, and one is that it might take a decade or longer for the value of this house to return to what you paid for it.