concerns about houseprices/mortgages

dragonfly02

Hi all, i'm a FTB and have been researching property in my area.
Whilst we are able to buy now, we are trying to decide how house prices may change over the year.

The mortgage we have been offered is fixed 5 yr at approx 4.99% and about 3.5 times our wages.

I'm new to property so have no idea about buying now or waiting, can someone outline the pitfalls of waiting i.e if house prices fall by 40% there will be more buyers and less houses (is this correct)
Also will the banks be likely to either cut multiples or raise their interest rates to make it harder for first time buyers to get on the ladder?

In short what I am getting at is with the mortgage details above, if house prices dropped by 40% would this type of offer still be available and would the banks tighten their criteria?

Thanx in advance

BobProperty

I think you have your interpretation of "market forces" the wrong way round. If more property comes on the market and/or there are less buyers, the price falls. If the market falls the likelihood is that people will be adversely affected, negative equity, repossessions etc. and lenders will be "tighter" with money. That is, they will increase the strictness of their lending criteria and lend at lower income multiples. HTH.

dragonfly02

sorry if i got it all backwards as i said ftb er with no clue how it works lol.
I just though if a £125k house becomes worth £75k many people would pull their houses "i'm not selling my bloody house for £75k"
There will be less houses on the market, but with prices at a more realistic £75k ftb ers would jump on the market making it harder for little old me to get an offer in before the houses are snapped up.

But i was right about tighter lending and income multiples?

There are houses i am interested in now and hubby keeps saying "we gotta buy now before the banks close ranks" i keep saying "if we wait the houses will be priced lower"

Whats best to do in this situation?

rchddap1

Only you can decide. No-one can truely tell what the future is going to hold. Yes prices might fall, but they may also rise or remain static. Just because some people say that house prices are high that doesn't mean that the price of those houses is going to fall dramatically within the next year...2 years etc....

My opinion on 'houses' is that someone buys a house to live in. If that is the purpose for the house then it doesn't matter when you decide to buy as you intend to live in that house....so saving money on rent.

jenniferpa

Personally, I think the scenario you describe (a major drop in house prices) is extremely unlikely. As you point out, individuals would be extremely unwilling to sell at the reduced price (even if they could afford to). Like everything else, less items on the market means a premium on those items available. Also, new builds would stay at similar prices (there's not a lot of flexibility in building costs). Stagnation of property prices, yes, and minor reductions, but at the lower end of the market prices will hold relatively steady, as market forces will keep them there. With property, waiting for the right house may be wise, waiting for prices to drop is, from an historical viewpoint, suicide.

Jennifer

dragonfly02

1 i could buy a house now for £100k appropriate for the whole family.

2 i could wait and possibly get the same house for £80k (thus lower mortgage payments)safer

My main dilema is by being greedy and wanting more money off a house will i shoot myself in the foot and find out that the bank are going to have re-adjusted and only offer us a mortgage for example £60k?

I'm really not doing a good job of explaining myself today

claz

my partner and i were having the same crisis about 3 months ago and we decided to buy as we found a property we liked and it is large enough for us to have a family and not be cramped

we said if we would want to move after 5 years or so then we were going to rent as this way it would let us see how the housing market would go, but in that instance we were only going to give it a year

i'd say if you can afford to buy it and you will be staying there long term then you won't regret it, no one knows what the future holds for house prices but if they do fall they have to rise again eventually.

Doozergirl

dragonfly02 wrote:

1 i could buy a house now for £100k appropriate for the whole family.

2 i could wait and possibly get the same house for £80k (thus lower mortgage payments)safer

You missed the scenario where that house is worth £105,000 or more next year Are you that confident as a FTB that house prices are going to fall that far in so short a period of time?

House prices were able to rise so quickly because vendors were happy to let people pay more (surprise, surprise!) but in order for house price to fall by 20% over a year, people have to be happy to sell at 20% less than they would be today. They won't be prepared to do that, so they'll put up with not having the double garage and utility room, keep the kids sharing a bedroom and simply stay put. People will only sell at low prices if they are forced to sell because they can't afford their mortgage repayments because of other elements like big interest rate hikes (set by the Bank of England; lenders will put their rate near to this, but higher).

So, a downward trend will take time and by that time you've paid thousands in rent anyway.

Buy because you want somewhere to live and call your own, not because you want a bargain.

rchddap1

Indeed, as I said...house prices may not necessarily fall! You cannot and should not rely on this. its equally as likely that house prices will once again find further momentum and your house would be priced at £120k in over 1 year's time.

How would you feel in that situation to have lost a free £20k?

I can understand wanting to play the market and get the best deal possible, but you are really only guessing that the market will fall by a substantial amount. People have been suggesting that for a few years now...but still we're waiting for it to happen.

Don't rely on house price falls, or increases either. Playing the market is pointless unless you have the in-depth detailed knowledge. If you are looking for a house for your family to live in....then do that....look for a house for your family to live in factoring in an interest rate increase just in case.

dragonfly02

doozergirl, the reason i have not suggested that prices may rise is because thats "the norm", i've been renting now for 12 years paying thousands but not been in a position to buy before.
I naturally assume that house prices will rise again but i didn't want advice on rising house prices. I already know what the concequenses would be for me, i'd be priced out of the market again.

That why i was asking only about price drops. I have a family and with that comes the respnsibility of being sensible about money. Id hate to make a bad investment and find out that in a few years time i am in trouble like i hear some are or will be in if house prices drop.

As i have said many times before i am a first time buyer and i am fortunate enough to have found this website with a sea of information on many different things, I thought I should ask advice and then will be closer to making an informed decision based on the replies.

Can anyone also give me a worst case senario if i purchased now with fixed 4.99 for 5 years?
The repayments on this are £50 more than my monthly rent, so its affordable for us but are there any traps or silly mistakes we could make?

rchddap1

If you buy with a fixed interest rate and you don't intend to move within the 5 years (ie, not bothered if house prices rise or fall, because its your home) the only situation where you could lose out longer terms was if interest rates fell substantially. That is you are fixed at 4.99, but interest rates fall to 3.99 for example. However, you would be protected if rates increase to say 5.99 or higher.

However, do your maths. Sit down and plan a budget including everything (council tax, utilities etc...) and see how things work out.

However, one important consideration....and one that influenced my decision to move to buying. If renting you are essentially putting £000s into your landlords back pocket. You are not gaining in anyway financially, except for a roof over your head. Buy a house though and over time your money is invested in the house.

I was spending £475 a month on rent....money in my eyes wasted. I am now spending £475 on mortgage, but have approximately £17k in equity. Even if house prices fell I'd still be better off than I was renting because my monthly payments are paying off my mortgage, rather than funding someone else's holidays and lifestyle.

My £475 a month would not have disappeared into a black hole, but would have been converted into an investment in my house.