When is the right time to buy..

_bankrupted

On another thread someone was asking when is the right time to buy... to avoid contributing to the argument that always follows about an unrelated matter here's my view in a separate thread.

From a random sample taken off rightmove for my area.

Advertised cost of 3 bed semi 240k
Interest @4.5% on 240k = £900 per month
Advertised cost of rent for identical 3 bed semi £1000 per month

Advertised cost of 4 bed detached 380k
Interest @4.5% on 380k = £1425 per month
Advertised cost of rent for identical 4 bed detached £1500 per month

So if you can secure a mortgage @4.5% then as a direct comparison buying is a little cheaper. Remember for those advertised property prices you could offer up to 10% less and probably (maybe) have the offer accepted.

So.

3 bed Interest @4.5% on 216k = £810 per month
4 bed Interest @4.5% on 342k = £1282 per month

Looking at mortgage lending at more sensible levels. Which really means about 4 times salary and 20% deposit and bearing in mind those houses aren't the typical first time buyers properties, hence using a more generous salary of £35k (for my area)

Then 4 x 35k = 140k
Deposit @20% = 43k

Total = 183k for a 3 bed semi.

Add the fact that demand for property will push it higher than the basic calc above and you can see we aren't far off the bottom.

Of course if renting prices fall through the floor based on a very bad recession then the above doesn't hold. Since no one would buy if renting was half the price.

For what it's worth I think 2009 will see around another 10% fall (in advertised price) and then 2010/11 flat with prices starting to rise end 2011, start of 2012.

Some areas will be a lot worse, those that saw massive increase in the last 5 years, West, North East. Some areas will be a little better SE.

Don't believe those that shout about a 40%-50% fall from here. They are wishful thinkers.

silvercar

Add in the maintenance costs to buying a property.

_bankrupted

Add in the contract fee, reference fee, inventory fee, and on termination checkout fee, damage/cleaning fee for renting. Repeat every 12 months..

PasturesNew

Add in the mortgage arrangement fee, survey/solicitors' costs, the loss of interest on the deposit savings.

And what if prices drop another 20%?

We are nowhere near the bottom yet.

spuds_2

If you really want to own your own home, it makes sense to buy when the mortgage payment is cheaper than the rent. In our area, a three bed semi that costs £230k to buy, costs £650/700 to rent - quite a difference per month. Once prices fall to more sensible levels (and people have saved a deposit) then the market will start moving again.

scousethife

When is the right time to buy..

Tuesday mornings normally.

LittleMissAspie

_bankrupted wrote: »

3 bed Interest @4.5% on 216k = £810 per month
[...]
Then 4 x 35k = 140k
Deposit @20% = 43k

Total = 183k for a 3 bed semi.

183 is 16% down from 216. I don't think 16% to go is near the bottom.

benood

_bankrupted wrote: »

Advertised cost of 3 bed semi 240k
Interest @4.5% on 240k = £900 per month
Advertised cost of rent for identical 3 bed semi £1000 per month

Taking the above example - I assume the following:

• 7% rental yield is a reasonable return
• net income from the above 3 bed semi would be £10,000 pa (1 month rent is void, 1 month goes in repairs.)

Gives a fair value of [10,000/7% =] £142,000.

A further fall of 40% - and if values overshoot on the downside we could see the full 50% from here, scary, especially since I don't think I'm as bearish as some around here!

Interesting that OP assumes a 4x mortgage - historically 3x was the norm - if you take that with a 20% deposit as an affordability guide you get quite close to the £142k.

neas

these comparisons only look at the short term monthly ougoings.

Sure you would pay less on your mortgage per month.... while chipping away a bit of the loan value... but the equity you have in the house would be eroded faster than the saving you make vs renting.. its a no brainer really :P.

its all about the 5 year timeline....

Scenario 1:

Buy house now at 100k.. in 5 years time its at 70k

So you have a mortgage for 90-95k (as you've wittled some if it down with payments i guess)

Scenario 2:

Rent for 5 years then buy same property Scenario 1 has for 70k>

You pay a little bit more per month in interest (in this case 6k if your rent is 100 pound higher a month)

So..... you lose 6k (rent is dead money lol) but pay only 70k for property.


So in essence in comparing Scenario 1 with 2:

Scenario 1 after 5 years: 90k mortgage but saved 6k against paying 100 pound a month extra into rent.
Scenario 2 after 5 years: 70k mortgage

So just simply comparing, fag packet style Scenario 2 is approx 14k better off mortgage wise than Scenario 1 (assuming Scenario 2 overpaid the mortgage etc)

And for most of us, we are waiting in the weeds so to speak.. I rent a 1 bedroom flat...... comparing this against a 3 bed semi I save:

1. A fair bit on cheaper fuel as its smaller
2. Maintenace costs, redecoration costs
3. Buildings Insurance
4. Higher Council Tax Band
5. General upgrade/decoraton costs which directly feed into my current savings (why decorate when someone else will decorate the house i will buy in the future).

So Its a no brainer for me.... the time for me to buy will be in 1.5-2 years time most lijkely... and that is my estimate.... of course this rececssion we are heading into... is going to make us all alot poorer... i am already sseeing rents falling quite alot in my local area so the comparison will get better in favour of renting.

brit1234

_bankrupted wrote: »

Don't believe those that shout about a 40%-50% fall from here. They are wishful thinkers.

Even Phil Spencer of Location, location, location is talking of 50% falls now. The people who have called this are independant educated economic experts. All you have to do is the maths behind mortgages and banks ability to lend in a downturn and you will come to our view point.

I'd just like to say we have been ridiculled over our 50%+ view point over the last 2 years. However everyone who has done that is constantly revising their figures ever closer to us. We are already seeing a massive increase in 50% drops in property already. With the economic situation likely to get worse I don't see how you can be so dismissive. We will be about 20% down accross the country by christmas alone, with crashes usally lasting years.:eek:

_bankrupted

I think the same logic that grips people in the boom is equally applicable in the bust.

Individuals only see ever increasing house price rises even when un-affordability is staring them in the face, the concept of houses falling in price is unimaginable. Conversely during the falls the prospect of ever increasing losses seem inevitable with all hope lost.

Approaching 20% fall by end of this year. Maybe 10% next year and interest rates probably falling to 2% or less.

Contrast that with the last bust. Overall falls of around 15% (according to the Halifax??) and interest rates averaging 7%~8% between '89-'95. That quoted decline must be in absolute terms so with 6 years of inflation to adjust for in real terms the fall was probably around 35%~40%.

Just as most people at the top of the peak if asked would say house prices will be more next year, then the same is true in the falling market, the trend continuing

One difference this time is that this crash has happened much more quickly and hence gives the added illusion that we have much further to go. I think it will mean we simply sit at the bottom much longer.