120k Mortgage --> baby on the way.. advice

lisyloo

House price fluctuations after you buy do not impact any of these factors, so the cost of buying remains the same.

I agree, the cost stay the same.
But it is much higher than if you had bought at a lower price.

If someone's income is secure enough and high enough that they can cope with significant interest rate rises, then there is not really any problem at all with their buying now.

I agree, but if you could have bought it at £100K less in 2 years time, then wouldn't you call that a significant impact on your lifetime wealth.

Let's also not rule out the fact that there is something like a 1/3 chance that this person will get divorced and could potentially become a forced seller.
If prices fall below the price they paid then as Pal said, there is a problem.

laminki

Floater

Congratulations first of all! Girl of your dreams and a baby on the way. Well done!

secondly, if your new family needs a roof over their heads and you both can afford to buy it and pay for it and are prepared to move in and live there at that price.... then why rent?

Because you SPECULATE that you may make some money? Hmmmmm. Seems that's quite high stakes to gamble with!

Of course if you look at a property and consider the resources that you will have to consume in order to live there (those years hard grind at work, the money, the sacrificed holidays/opportunities) and you figure that it is not worth it at that price (even if you could sell at short notice and get all your money back) then that's a different story.

But if you can AFFORD it and are PREPARED to afford it then why not?

Pal

I agree, but if you could have bought it at £100K less in 2 years time, then wouldn't you call that a significant impact on your lifetime wealth.

Yes, obviously. My point was that house price reductions do not impact your wealth just because you have bought a house at a higher price than you could now sell it for. It is a paper loss until you sell and realise it. This is why it is worrying that so many people are borrowing against their notional equity on the basis that they are somehow richer than they were before.

Your wealth is affected on the day you buy whatever the price, as you make the financial commitment at that point. If house prices fall or rise it mean nothing unless you are going to sell and move to rented accomodation at a later date which very few people actually do.

If prices fall below the price they paid then as Pal said, there is a problem.

I didn't quite say that. There is only a problem if you are forced to sell. And anyway, there is only really a major problem if the house price falls below the outstanding mortgage value, rather than the purchase price.

The question I was answering was whether house price falls impacts on people's wealth, and for most people it doesn't, unless they become a forced seller at a later date.

For once I tend to agree with Laminki (he must have copied his answer from somewhere else). If you need the house now, can afford the house, are willing to pay the price and are happy to take the risks, then there is no reason not to buy now.

One of the "risks" is that you kick yourself for not buying in 2 years when property is dirt cheap, but that can be said about any investment. I wish I had bought Microsoft in 1994. I wish I had gone short on Marconi and Enron. I wish I had bought a lottery ticket with the winning numbers on it....

I would rent for another couple of years and try and keep saving for a larger deposit. House prices are not going to go up that much over the next few years so renting for a while looks a fairly safe bet to me, even if the crash doesn't come.

I need a bigger house myself, and the renting route is the one I am looking to take.

floater_2

laminki .. cheers for the congratulations.  

That is exactly what I have wanted somebody to say .. We re prepared to buy and pay for a house at that price and it will hopefully we'll find a nice house and area for a number of years in whcih we can bring up our first.  Thanks for the advice ... just needed to hear peoples thoughts if that makes sense. ???

System

laminki .. cheers for the congratulations.  

That is exactly what I have wanted somebody to say .. We re prepared to buy and pay for a house at that price and it will hopefully we'll find a nice house and area for a number of years in whcih we can bring up our first.  Thanks for the advice ... just needed to hear peoples thoughts if that makes sense. ???

Makes total sense to me. Look at the amount you can sensibly afford in order to give your family a secure home, and base yr decision on that. IMO you should only be looking to 'play the market' if a) you already have financial security and a roof over your head that will still be yours if the market pitches and rolls or b) if you can't afford to get yr foot on the housing ladder, so need to be a bit canny and get yr timing right.

As you have a house to sell already, market fluctuations are going to be the same for the house you sell as the one you buy. You may get a bit lucky and make a few bob by selling your house high and buying the new place when the markets dipped a bit but really, really, don't count on it, nor base decisions on it. Be a 'money saver' and get a good deal on yr mortgage etc, but don't speculate with your home.

(It's a home first, then a 'property' IMO.) ;-)

nearlyrich

Congratulations on the baby news, I can't help feeling that everyone is missing something here, babies don't arrive with expectations of living in a big house or having their own bedroom from day one. Most new babies sleep in the parents room for a while so you have got quite a few months to look around for the ideal house that you can afford. I would be tempted to stay put rather than sell up and rent unless you can see prices dropping in your area. I know people who have sold property and struggled to find what they want straight away so they have rented for 6 months, meanwhile the market moves on and their proceeds from the sale don't stack up against the new higher prices. In the Northwest houses are still increasing in value, just been looking at the local weekly paper and that is still the case. I don't know what is going to happen in the long term but if you are buying a home as opposed to an investment property the main thing is to be comfortable paying the mortgage and leave some margin for interest rate increases. Good luck and I hope you find your ideal home at a bargain price.

yonk

Your house is your home first so buy or rent the one you like.

You can debate about house prices endlessly as the discussion above shows but the truth is no-one knows. If they did, I'd have sold my BT shares 3 years ago and not worried so much about the cost of my house.

Think of it like a car - when you at a nice, shiny car and it's your dream car, does a bloke saying "that will be worth several thousand pounds less in 2 years" put you off?

It will for some moneysavers but not others and everyone has their own bottom line about where they are prepared to spend money.

Rent is just an income stream. When you are buying a house, you are just paying the future rent in one lump sum. The only real difference is the "security of tenure" that you have. If you rent, the person who has the final say in whether it stays your home is the owner of that house. I know you can be repossessed if you own a house but that is quite rare.

An investor or a person who rented out their house for a while (eg whilst abroad) taking back their house to sell is much more common. So if you do rent, ask questions about what type of tenancy and the duration - I'm sure you don't want to be moving while the baby is still small.

Congrats on the baby. Hope everything goes well.

DiggingOut

If I were in your position, I would be looking at houses to buy AND houses to rent.

If you find a good place to rent, you can take it. If you find the house you want to buy and you can afford it, even if rates increase, I would buy it.

You are looking for a home, not an investment.

One thought -- if you had bailed out and rented three years ago, you would be hurting to get the equivalent house today, because prices have shot up. But virtually no one expects that to continue.

Most people expect either a significant slow down in price increases, a leveling off with no increases, or a decline in house prices. If any of those three scenarios proves true, you will be no worse off buying a house in two years' time than you are now, and you may be a lot better off. If your £20K makes 5% / year in interest, it may well keep pace with house price increases over the next two years, or better them.

My first choice would be to rent.

I agree with nearlyrich also about no need to rush. It's easier to have another room for baby, but not necessary. Take your time to decide and find a good home.

cath-w

Buying at the top of the market can affect your long term wealth in a BIG way.

I agree with this also. If the price for a 2 bed terraced house is currently 140 thousand over 25 years at 5% interest you will pay roughly 175 thousand for the house in total taking into account the interest on the mortgage.

If you wait until the market dips and buy the same 2 bed terraced house for 100 thousand over 25 years at 5% interest you wil pay 122 thousand in total.

This means that the extra 40 thousand on the mortage has in fact cost you an extra 53 thousand when you include the interest costs. So you are affecting by having a larger mortgage.

Of course these figures are all guesstimates, but they are OK to explain my point.

Woby_Tide

whilst that technically is correct you have to also take into account that whilst waiting for the correction in house prices you are renting so you have to factor that against the cost difference in mortgage, also fact that buying now technically means your mortgage is finishing earlier so you have that time at end of mortgage with no mortgage/rental so cash can be ploughed into investments. Just to make sure implications of buying now v waiting to buy are weighed up