Should I Buy? BBC News sowing doubts

tomstickland

I'd suggest borrowing less than you could to give a decent buffer for future IR rises and also to free up money for more interesting things than paying a mortgage.

meanmachine_2

Here's the report the OP is referring to.

Think Evan Davies is great, but Jaysus the 10 OClock News is really dumbed down these days.

No wonder the unwashed masses think house price rises are a good thing.

http://news.bbc.co.uk/nolavconsole/ukfs_news/hi/newsid_5070000/newsid_5073800/bb_wm_5073878.stm

jonewer

If you can only afford an Interest Only mortagage then you cant afford a mortgage.

Interest Only is for people who have substantial capital and believe they can grow their money at a greater rate than their mortgage.

Property_Magnate

Well, as long as I have properties to sell, I think it's a great time to buy!!

To be serious, I have noticed a definite mood change recently. People may actually be catching on that you can go wrong with property.

That report on the BBC yesterday about rising interest rates and falling house prices may have come as a shock to the average punter. The average punter doesn't like shocks.

jonewer

meanmachine wrote:

Here's the report the OP is referring to.

Think Evan Davies is great, but Jaysus the 10 OClock News is really dumbed down these days.

Good lord! Are we going to have Big Bird and the Cookie Monster presenting the 10 O'Clock news next?

dale01

You could play it safe and get a 5 year fixed rate mortgage.

wisbech_lad

If you can only afford on an IO - you can't afford it. As others have said.

lightspeed

wisbech_lad wrote:

If you can only afford on an IO - you can't afford it. As others have said.

Yes, if you can ONLY afford IO then you obviously cant afford a repayment mortgage. However, i feel that IO mortgages can also be beneficial to certain groups of individuals e.g.

1) Those at the start of their careers and those you are young enough that they are at the lower end of their earning potential. If someone is 23 earning 20K an IO mortgage may allow them to afford the home that they want instead a home that have to settle for due to financial constraints. All this knowing that in 1, 2, 3 or 4 years time that same person is likely to be earning 30K due to the nature of their occupation. There are many careers where this can happen e.g. police, teaching, accountants etc... (timescales will differ)

2) Just because someone chooses to have IO mortgage doesnt mean that they cant afford repayment or even part and part. Maybe this person doesnt know where they will be in 5 years time and would like to free up spare cash in the meantime.

3) Those who have bought a cheaper property that needs work doing on it, again IO mortgages will initially free up some cash to make improvements before switching to repayment when circumstances change.

I agree, if you literally cant afford anything more than an IO mortgage at current rates then you definitely are stretching too far. However, IO mortgages can have their advantages in this current climate where the average house price is in the region of 180K yet wages just arent in line this amount.

It really does depend on your situation (age, earning potential, future plans etc...) and at the end of the day, IO mortages are like renting, but from the bank and with the perks and downsides of being a homeowner (your name on the deeds).

I still strongly recommend anyone in this situation to seek professional advice and not to base their finances on current IR's.

movieman

If someone is 23 earning 20K an IO mortgage may allow them to afford the home that they want instead a home that have to settle for due to financial constraints.

Out of interest, what kind of 'home' can you buy in this country on a 20k salary, even with an interest-only mortgage?

Pre-boom, someone on that salary would have taken out a 60-80k mortgage, which would have bought a decent terraced house in much of the country. Seems to me that today you'd be lucky to get a studio flat above a crack den for that price... hardly my idea of a 'home'.

I can't see how anyone of that age on that salary can buy a decent home without either taking on massive debts they'll be lucky to ever repay without major wage inflation, or being given a large amount of money by their parents.

lightspeed

4 times income (quite the norm for a single person nowadays) = 80K, plus deposit (lets say 5 - 10K) = total purchase of 85 - 90K.

Believe it or not there are homes still available at this price (perhaps not down south but certainly up north). In my area 90K would get you a 2 bed terrace in a half decent area and in some less desirbale areas a 2 bed semi. Granted it will be no-frills but ample for an individual looking for a place to live.

90K @5% = repayment would £530 approx and IO £375 (difference £155)

20K per annum = approx £1100pm therefore mortgage = 48% (repayment) & 34% (IO) of monthly income.

Therefore, an IO mortgage would make this individual's monthly income better by £155 until there salary increases.

I have always wondered whether much of the content on this board refers to property in the south. In the midlands, particulary the area in which i live, property has increase greatly since 2001. However, there are still affordable properties around despite being overpriced when comparing the cost to 5 years ago.

How much would 150K get you in London or the south in general?

Myself and my partner have just purchased a 3 bed semi in a very desirable area with front and rear gardens, each a good size, garage, driveway and double glazing throughout for that amount. Down south, would you be lucky to get a flat for that price?