FTB expectations too high?

IveSeenTheLight

penguine wrote: »

I think you've hit the nail on the head, this is the flaw with the argument that it's better to get on the "property ladder" young. If house prices rose in line with inflation and salary increases, there would be no real advantage to getting on the ladder sooner. Those who were renting could build up their savings and as their salaries would be likely to increase over the years, they would not have to get onto the "bottom rung" of the ladder the first time they buy a property.

Those who bought near the beginning of latest bubble have had an advantage over FTBs only because the rising market had just about priced out anyone who wasn't already a property owner or was willing to borrow a huge multiple of their salary.

I think your view is flawed.

If we take a hypothetical situation of a FTBer who bought a property for £100,000 with a £25,000 salary. The second person rents / travels (does not buy)
Lets say in 10 years time the property is worth £200,000 and both the income has increased to £50,000 (keeping same ratios)
In that 10 years, the outstanding mortgage would have been reduced by say £40,000.
Both situations are now that they want to upgrade / buy a property in the value of £300,000

The question is, would the person who did not buy 10 years earlier, likely to have saved up the £140,000 equity the other person has in equity? (Note: not including any savings the homeowner may have). If the answer is yes, then, you are right there is no difference to buying 10 years earlier, if the answer is no, then this can highlight why there is a benefit to owning a smaller property before buying a family home years later.

Anna72

penguine wrote: »

I wish there were lovely terraces around us for that price. We spent years looking at properties priced around £300k as that was what we felt we could afford (in retrospect it would have seriously stretched our finances though). We live in an unfashionable London suburb, our jobs and family and friends are in this area so we don't want to move. For £300k we were looking at poky cramped houses that made our 2-bed flat seem spacious, and that needed more work than we were going to be able to afford after paying for our mortgage.

As a result, we've been on and off househunters for over 3 years, and are still living in our flat.

Well our lovely 4 bedroom 2 bathroom terrace is on the market for under £200K now as we're looking to move - and trust me I'm gutted at the thought of leaving this house as we've put so much of ourselves into it and it's where we became a family, but certain reasons mean it has to be. Is less than an hour by direct train to London and the station is 3 minutes walk away. Any London takers?

ixwood

IveSeenTheLight wrote: »

I think your view is flawed.

If we take a hypothetical situation of a FTBer who bought a property for £100,000 with a £25,000 salary. The second person rents / travels (does not buy)
Lets say in 10 years time the property is worth £200,000 and both the income has increased to £50,000 (keeping same ratios)
In that 10 years, the outstanding mortgage would have been reduced by say £40,000.
Both situations are now that they want to upgrade / buy a property in the value of £300,000

The question is, would the person who did not buy 10 years earlier, likely to have saved up the £140,000 equity the other person has in equity? (Note: not including any savings the homeowner may have). If the answer is yes, then, you are right there is no difference to buying 10 years earlier, if the answer is no, then this can highlight why there is a benefit to owning a smaller property before buying a family home years later.

I think that's a valid point. Buying a house is effectively enforced savings (unless you MEW or are IO). I imagine a lot of that money would be spent otherwise.

And of course the cost to rent and to pay a mortgage is usually fairly similar, so it makes much more sense to buy instead of renting and paying someone else mortgage.

IveSeenTheLight

thegibdog wrote: »

Surely this negates your "all being equal" statement?

"all being equal" statement?

housesitter

ixwood wrote: »

And of course the cost to rent and to pay a mortgage is usually fairly similar, so it makes much more sense to buy instead of renting and paying someone else mortgage.

As a FTB. I see it this way.
For example:

5 years ago I could have bought (for example) a 200K house with a 100% mortgage. Monthly payments would have been circa 1200 on a 25year at 5%.

Instead, I rent the very same house at 700 a month and bank the 500quid extra in a high interest savings account.

I watch the property market go up over the next 5 years and then crash back to the level it was when I started renting.
I then buy the same house for the same price but with a 30K deposit (plus the compound interest!!) on the same 25year term at 5% and am paying about 900/month.

I can then bank the difference of 300quid to build my savings back up again, or over pay to the tune of 3600 a year thus paying my mortgage off many years in advance of buying at 100%.
The downside is I've missed out on living in my own house for 5 years.
The upside is I've saved lots which might have gone on decorating and maintenance.

So, for the minor issue of paying a LL's mortgage which doesn't bother me, I'm actually much better off financially for having done so, in the long term.


Renting doesn't work for all, but for some it is a very powerful way for saving money over your lifetime on a house purchase.
The rush to get on the ladder is ill conceived for many people, but the idea of renting being dead money seems to continue. I can only assume this is because people see their own situation and think it applies to everyone else whatever their stage in life.


Renting is the very reason why I'll be able to get on the ladder with a house I want to live in and be able to comfortably afford it without worry for it's entire term.

tara747

brummybloke wrote: »

i would actually think 'most' people do not think that a 3 bed semi is an average house.

unless of course by average you mean half way up the housing ladder? in which case i would agree with you.

but then are you saying that 3 x the average wage should right from the off get you half way up the housing ladder?

*sigh*

Sorry if this point has been made already, haven't read the whole thread yet.

First time buyers these days tend to earn WELL ABOVE the average wage, unlike in the good old days! That's why we expect to get at least a 3-bed semi for our above-average wages and savings. I earn £32k, the OH is on a similar salary and we have £26k in savings (aiming for £37k by the end of 2009). Why the heck shouldn't we expect to buy more than a grotty flat with that??

If we were on £20k with few savings, we'd have to set our sights a bit lower - or keep saving and striving for promotions. People on the average wage have not been able to buy in the last few years in case you hadn't noticed (except for a sorry few who overstretched and shouldn't have - but that's another story).

We are not going to blow our hard-earned savings on any old place. Now that house prices are coming down, we are sitting and waiting for something decent that's value for money and have a short mortgage - 20 years max, just like in the good old days. We're not afraid of a 'doer-upper', by the way.

Thrugelmir

IveSeenTheLight wrote: »

I think your view is flawed.

If we take a hypothetical situation of a FTBer who bought a property for £100,000 with a £25,000 salary. The second person rents / travels (does not buy)
Lets say in 10 years time the property is worth £200,000 and both the income has increased to £50,000 (keeping same ratios)
In that 10 years, the outstanding mortgage would have been reduced by say £40,000.
Both situations are now that they want to upgrade / buy a property in the value of £300,000

The question is, would the person who did not buy 10 years earlier, likely to have saved up the £140,000 equity the other person has in equity? (Note: not including any savings the homeowner may have). If the answer is yes, then, you are right there is no difference to buying 10 years earlier, if the answer is no, then this can highlight why there is a benefit to owning a smaller property before buying a family home years later.

On the basis that the both house prices and individuals salaries increase over the 10 year period.

(a) The person with the mortgage could afford to pay more into the mortgage thereby reducing the capital outstanding.
(b) The person renting would pay increased rents over the years costing them more in the longer term.
(c) In a normal market you would expect rent to be higher than the cost of the mortgage (to cover void periods, management fees etc). So the person renting would have higher cash outgoings.

The BTL market has been distorted over the past 8 years. As investors have jumped on the bus to get a capital appreciation gain by leveraging up with cheap money. Rents in the longer term will require a margin above an equivalent mortgage to produce a real investment return.

At the moment the market has yet to find its natural bottom. Market forces will determine property values. The reduction in available credit is permanent.
I dislike the terminolgy lack of credit , as this was based on inflated property prices.

If your savings interest rate is above the cost of a mortgage, then stay renting. As you are winning all round.

Out,_Vile_Jelly

housesitter wrote: »

A

Renting doesn't work for all, but for some it is a very powerful way for saving money over your lifetime on a house purchase.
The rush to get on the ladder is ill conceived for many people, but the idea of renting being dead money seems to continue. I can only assume this is because people see their own situation and think it applies to everyone else whatever their stage in life.


Renting is the very reason why I'll be able to get on the ladder with a house I want to live in and be able to comfortably afford it without worry for it's entire term.

It's refreshing to hear from someone else with similar views. I really hate the sensation of being looked upon as mentally or morally impaired for renting and for being made to feel like some sort of peasant. I am paying to live in a nice property in a nice area while someone else has to foot the bill if the boiler dies and worry about boring things like interest rates. I personally would rather rent somewhere I enjoy living whilst saving, than be stuck with a property in a scuzzier area just for the sake of calling myself a homeowner. People in this country place a social value on owning property that I think is unnecessary (that's a rant for another day!).

tara747

housesitter wrote: »

As a FTB. I see it this way.
For example:

5 years ago I could have bought (for example) a 200K house with a 100% mortgage. Monthly payments would have been circa 1200 on a 25year at 5%.

Instead, I rent the very same house at 700 a month and bank the 500quid extra in a high interest savings account.

I watch the property market go up over the next 5 years and then crash back to the level it was when I started renting.
I then buy the same house for the same price but with a 30K deposit (plus the compound interest!!) on the same 25year term at 5% and am paying about 900/month.

I can then bank the difference of 300quid to build my savings back up again, or over pay to the tune of 3600 a year thus paying my mortgage off many years in advance of buying at 100%.
The downside is I've missed out on living in my own house for 5 years.
The upside is I've saved lots which might have gone on decorating and maintenance.

So, for the minor issue of paying a LL's mortgage which doesn't bother me, I'm actually much better off financially for having done so, in the long term.


Renting doesn't work for all, but for some it is a very powerful way for saving money over your lifetime on a house purchase.
The rush to get on the ladder is ill conceived for many people, but the idea of renting being dead money seems to continue. I can only assume this is because people see their own situation and think it applies to everyone else whatever their stage in life.


Renting is the very reason why I'll be able to get on the ladder with a house I want to live in and be able to comfortably afford it without worry for it's entire term.

********applause********

:T :T :T :T :T :T :T :T

Same here! Why don't the 'rent is dead money' crowd get it????

Post of the year.

tara747

Thrugelmir wrote: »

On the basis that the both house prices and individuals salaries increase over the 10 year period. - salaries have been decreasing in real terms, borrowing has filled the gap for a lot of people sadly, this is not the 70s

(a) The person with the mortgage could afford to pay more into the mortgage thereby reducing the capital outstanding. - and the person renting could afford to save more (IF their salary was increasing - also they are earning interest, while the mortgagee is paying it)
(b) The person renting would pay increased rents over the years costing them more in the longer term. - rents have decreased in real (and recently nominal!) terms in a lot of UK cities in the last decade
(c) In a normal market you would expect rent to be higher than the cost of the mortgage (to cover void periods, management fees etc). So the person renting would have higher cash outgoings. - rents have been waaaay below mortgage costs for some time now

The BTL market has been distorted over the past 8 years. As investors have jumped on the bus to get a capital appreciation gain by leveraging up with cheap money. Rents in the longer term will require a margin above an equivalent mortgage to produce a real investment return. - rents can only increase if demand exceeds supply. At the moment supply greatly exceeds demand, keeping rents down.

At the moment the market has yet to find its natural bottom. Market forces will determine property values. The reduction in available credit is permanent.
I dislike the terminolgy lack of credit , as this was based on inflated property prices.

If your savings interest rate is above the cost of a mortgage, then stay renting. As you are winning all round.

So, in conclusion - sure, there are some periods in history when it has made sense to buy with massive wage inflation necessary to reduce the burden of your mortgage. Now is not one of them. People who are currently renting and saving are in a brilliant financial position and those with crippling mortgages and negative equity are, well, not. IMHO.