First Time Buyer - Advice Required!!

Rave

kazzy wrote:

except that at the end of the day he will own his house and have a valuable asset and if you rent you never will.

Why? I'm not saying that you should never buy, just don't buy now. If it's cheaper to rent the place than it is to borrow money to buy it, then the only way you could profit by buying it is if prices continue to rise at a rate higher than the rate of inflation- and almost everybody agrees that's very unlikely to happen for the next few years, even the banks and EAs. If you rent, and save the extra money that you would have spent on a mortgage, then when prices drop (or wage inflation makes prices more affordable) then you're in a better position down the line than if you'd bought at the top of the market, because you've saved up a large deposit in the meantime.

Rave

Ian_Griffiths wrote:

The argument for renting is that in the event of a crash you are unaffected.

There is no other legitmate reason not to buy as far as I can see.

Right, how obvious do I have to make this? IF IT IS CHEAPER TO RENT THE PROPERTY DIRECTLY THAN IT IS TO PAY INTEREST ON THE MORTGAGE NECESSARY TO BUY IT, YOU WILL BE BETTER OFF RENTING IN THE LONG RUN UNLESS PROPERTY PRICES KEEP OUTPACING INFLATION. Which they almost certainly will not- the era of massive house price inflation is over, kaput, finito etc. Even if this supposed 'soft landing' materialises (and history suggests it will not), property is going to a poor investment for the next few years.

Look at it this way- if you owned your house outright and had a large sum of cash to invest, you would be a fool to invest it in property. At the moment, a typical rental income gives a ROI of less than 4%. Merely putting the cash into a high interest savings account would get you close to 5%. However, if house prices were to crash, you'd only be out of pocket, not seriously in debt. So, given that buying property is a bad idea for people who can afford to lose money, why the hell are so many people here advising people to borrow heavily to invest in property? Negative Equity is a real phenomenon. It screwed over hundreds of thousands of people in the early 90s and it could well do so again. This website is about saving money- and by buying a house right now you are at best merely losing money, at worst you could lose your shirt.

Don't do it.

For the record, my brother and his girlfriend bought a flat this year with a 25 year I/O mortgage. If house prices crash they are more or less stuffed (or at least trapped in their one bed maisonette for the forseeable future). I have no debts, but no savings either, and since I'm currently unemployed I won't be in a position to take advantage of a crash in house prices for a good few years. I wouldn't be unhappy to see a 'soft landing' happen- I just think it's very unlikely. I personally plan to buy a house when it becomes cheaper than renting again.