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FTB - Would you?
Procrastinator333
Posts: 1,694 Forumite
I'm a procrastinating FTB and pretty comfortable in my view that waiting is the best option for those in my position. I'm talking about the financial choice, not that someone may want to buy for their family etc - different reasons and fair enough, but not the thrust of this post.
Curious to see what holes people pick in my argument, or the other arguments people make.
In the context of this post I'm talking about a FTB with a 10% deposit and a reasonable prospect of increasing that to 20-25% deposit over the next 18 months to 2 years.
At present we are renting in a house smaller than we will ultimately buy. Our rent is significantly cheaper than the interest we would be paying on the house we would end up purchasing (about 50%). If (If if if) prices are unchanged in 2 years, we will own significantly more of the house we end up buying than if we bought it today as a result of this fact. As highlighted in the other thread, the cost of a house is made up of 2 things, purchase price and interest cost.
Interest rates - Does anyone really see them rising by much? Does anyone see them rising by enough to offset the lower rates that become accessible once the FTB moves in to 20-25% deposit territory. Not me. So while interest rates are a big part, I think they are a bit of a red herring at the moment, the FTB can't get those rates, so who cares.
House Prices - This really just leaves house prices to influence the buying decision. While I'm not convinced their are significant falls on the way (where are the forced sellers going to come from if interest rates don't rise and banks don't reposess?), I also can't see an argument for hpi.
1) Today, before the LibCon cuts have even started kicking in, house prices have moved to stagnation and if anything a downward trajectory (though I think the downward direction won't gather pace as the sellers are not forced).
2) Unemployment and partial employment are high. That is a large section of potential FTB's who are not going to be buying. It is also a large group of people, from which there will be a limited number of distressed sales. Lower demand.
3) I don't see unemploymnet falling once the cuts kick in. The public sector may not make masses of people redundant, but I do think they will reduce the numbers by not replacing those who leave. Ultimately this has the same impact on employment. I personally don't think we have seen the peak of unemploymnet. Lower Demand.
4) Tax rises. There are plenty on the way, a lot of people will have less money in their pockets. They will simply have less to spend. Lower Demand (or the price point of the dmenad decreases).
5) Liar Loans look to be on their way out. I don't recall the numbers, but the fact these people had to lie implies they couldn't get that mortgage by telling the truth. Lower demand.
6) Banks not lending. Will banks offer any kind of decent rate below 20-25%? That would be a bit of a game changer, but I don't see it. Lower demand.
7) Housing benefit cuts. I don't think this will have the impact that it is sometimes portrayed as having, but any impact it does have can only be downward. Lower rents, lower yields, lower prices the LL can pay, some landlords for whom it is no longer profitable. Lower demand.
8) Sentiment. Articles in the press now seem to be turning towards a negative sentiment. Another month or 2 of this and it will feed through in to the general perception. Lower demand.
I struggle to think of any factors that apply upward pressure on house prices over the next year or 2. Perhaps if general inflation does hit 5%, that in itself may apply some upward pressure, but what else? Where will demand come from? And by demand I mean demand from people who actually have the ability to buy, not just window shoppers. I see stagnation or small falls over the next year or 2, which brings me back to the fact that the FTB should keep squirreling away a deposit while waiting for access to better rates. Once they have access to those rates, that is a whole seperate question, but that is for another day, in about 18 months I think.
Curious to see what holes people pick in my argument, or the other arguments people make.
In the context of this post I'm talking about a FTB with a 10% deposit and a reasonable prospect of increasing that to 20-25% deposit over the next 18 months to 2 years.
At present we are renting in a house smaller than we will ultimately buy. Our rent is significantly cheaper than the interest we would be paying on the house we would end up purchasing (about 50%). If (If if if) prices are unchanged in 2 years, we will own significantly more of the house we end up buying than if we bought it today as a result of this fact. As highlighted in the other thread, the cost of a house is made up of 2 things, purchase price and interest cost.
Interest rates - Does anyone really see them rising by much? Does anyone see them rising by enough to offset the lower rates that become accessible once the FTB moves in to 20-25% deposit territory. Not me. So while interest rates are a big part, I think they are a bit of a red herring at the moment, the FTB can't get those rates, so who cares.
House Prices - This really just leaves house prices to influence the buying decision. While I'm not convinced their are significant falls on the way (where are the forced sellers going to come from if interest rates don't rise and banks don't reposess?), I also can't see an argument for hpi.
1) Today, before the LibCon cuts have even started kicking in, house prices have moved to stagnation and if anything a downward trajectory (though I think the downward direction won't gather pace as the sellers are not forced).
2) Unemployment and partial employment are high. That is a large section of potential FTB's who are not going to be buying. It is also a large group of people, from which there will be a limited number of distressed sales. Lower demand.
3) I don't see unemploymnet falling once the cuts kick in. The public sector may not make masses of people redundant, but I do think they will reduce the numbers by not replacing those who leave. Ultimately this has the same impact on employment. I personally don't think we have seen the peak of unemploymnet. Lower Demand.
4) Tax rises. There are plenty on the way, a lot of people will have less money in their pockets. They will simply have less to spend. Lower Demand (or the price point of the dmenad decreases).
5) Liar Loans look to be on their way out. I don't recall the numbers, but the fact these people had to lie implies they couldn't get that mortgage by telling the truth. Lower demand.
6) Banks not lending. Will banks offer any kind of decent rate below 20-25%? That would be a bit of a game changer, but I don't see it. Lower demand.
7) Housing benefit cuts. I don't think this will have the impact that it is sometimes portrayed as having, but any impact it does have can only be downward. Lower rents, lower yields, lower prices the LL can pay, some landlords for whom it is no longer profitable. Lower demand.
8) Sentiment. Articles in the press now seem to be turning towards a negative sentiment. Another month or 2 of this and it will feed through in to the general perception. Lower demand.
I struggle to think of any factors that apply upward pressure on house prices over the next year or 2. Perhaps if general inflation does hit 5%, that in itself may apply some upward pressure, but what else? Where will demand come from? And by demand I mean demand from people who actually have the ability to buy, not just window shoppers. I see stagnation or small falls over the next year or 2, which brings me back to the fact that the FTB should keep squirreling away a deposit while waiting for access to better rates. Once they have access to those rates, that is a whole seperate question, but that is for another day, in about 18 months I think.
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Comments
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What you say makes sense IMO, but then house price changes often defy what I think makes sense, so you can never be sure.
One thing I would add is that general inflation won't necessarily push prices upwards. It depends whether you are talking about cost of living inflation or wage inflation. Wage inflation pushes prices upwards. Cost of living inflation without wage inflation pushes prices downwards because people have less money available to spend on housing.
Another factor you haven't considered is population changes - over a two year time span that would mostly be migration rather than birth/death/aging. Migration is affected when the relevant countries' economies are performing differently. If our unemployment is worse than many other EU countries, then fewer EU nationals will come here, and some of the economic migrants we already have may decide to go somewhere else. However, if their economies go down the tube in a worse way than ours, then more of them will come here to find work. The coalition may also change the rules for immigration from non-EU countries. The higher the population, obviously, the higher the demand for housing in general. Even if these migrants are mostly renting, the increased demand will push rents up, which creates an upward pressure on sale prices too.Do you know anyone who's bereaved? Point them to https://www.AtaLoss.org which does for bereavement support what MSE does for financial services, providing links to support organisations relevant to the circumstances of the loss & the local area. (Link permitted by forum team)
Tyre performance in the wet deteriorates rapidly below about 3mm tread - change yours when they get dangerous, not just when they are nearly illegal (1.6mm).
Oh, and wear your seatbelt. My kids are only alive because they were wearing theirs when somebody else was driving in wet weather with worn tyres.
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Procrastinator333 wrote: »
5) Liar Loans look to be on their way out. I don't recall the numbers, but the fact these people had to lie implies they couldn't get that mortgage by telling the truth. Lower demand.
That's going to have a massive impact. 43% this year were self certs alone. You have to wonder why people were going with that type in such large numbers over conventional mortgages. I suspect massive fraud by brokers still.
http://www.channel4.com/news/articles/business_money/fsa+moves+to+end+selfcert+mortgages++at+last/3709282:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
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Another factor you haven't considered is population changes - over a two year time span that would mostly be migration rather than birth/death/aging. Migration is affected when the relevant countries' economies are performing differently. If our unemployment is worse than many other EU countries, then fewer EU nationals will come here, and some of the economic migrants we already have may decide to go somewhere else. However, if their economies go down the tube in a worse way than ours, then more of them will come here to find work. The coalition may also change the rules for immigration from non-EU countries. The higher the population, obviously, the higher the demand for housing in general. Even if these migrants are mostly renting, the increased demand will push rents up, which creates an upward pressure on sale prices too.
I was slighltly reluctnant to put migration in there for fear of starting Hamish off on one.
But look at the most recent figures:
http://www.statistics.gov.uk/pdfdir/mig0510.pdf
Imo, these point to falling migration if anything. Net migration turned negative from the A8 countries for the first time (Fig 1.4). The first time since the borders opened in 04. Will be very interesting to see the next report in August, was that negative result a blip, or the start of a trend for the A8 citizens to return home?0 -
Procrastinator333 wrote: »I was slighltly reluctnant to put migration in there for fear of starting Hamish off on one.
But look at the most recent figures:
http://www.statistics.gov.uk/pdfdir/mig0510.pdf
Imo, these point to falling migration if anything. Net migration turned negative from the A8 countries for the first time (Fig 1.4). The first time since the borders opened in 04. Will be very interesting to see the next report in August, was that negative result a blip, or the start of a trend for the A8 citizens to return home?
Oh, I haven't a clue what migration will do. I just know that if it does anything, it'll have a knock on effect on the housing market.
My personal (and entirely unreliable) opinion is that whatever HP are going to do, they aren't going to do it very quickly. Beyond that, I've no idea.
Do you know anyone who's bereaved? Point them to https://www.AtaLoss.org which does for bereavement support what MSE does for financial services, providing links to support organisations relevant to the circumstances of the loss & the local area. (Link permitted by forum team)
Tyre performance in the wet deteriorates rapidly below about 3mm tread - change yours when they get dangerous, not just when they are nearly illegal (1.6mm).
Oh, and wear your seatbelt. My kids are only alive because they were wearing theirs when somebody else was driving in wet weather with worn tyres.0 -
now, now - for you never would be a good time to buy with a mortgageChaos_A.D. wrote: »I think you summed it all up in your post tbh. Now isn't a good time to buy, only VI's will tell you different.
to add even if you pay at today's prices - if you do get a good mortgage deal that allows you to overpay - it will takes years off your mortgage and the total price paid for the house. irrelevant if you wait hoping to get 10% off a house.Chaos_A.D. wrote: »But IMO the market has now peaked on the back of some highly favourable conditions that cannot possibly be maintained long term.0 -
to add even if you pay at today's prices - if you do get a good mortgage deal that allows you to overpay - it will takes years off your mortgage and the total price paid for the house. irrelevant if you wait hoping to get 10% off a house.
It takes years off your mortgage if you start with a larger deposit and then go for a shorter term. Same result.0 -
The only arguments I see for rising prices is:
A) Immigration. As has already been discussed, and not sure where that is going at present.
Sellers taking houses off the market as we have seen before, descreasing the amount of properties available. However, those sellers will just put them back on again if prices rose, having the same effect as is happening now.
C) More government intervention. Not sure what this intervention would be. Maybe forced lending, completely new products etc etc, but I'm sure something could be pulled out of the bag to keep prices high for just a little longer.
Overall though, it's extremely hard to argue against all the points in the OP. It wouldn't surprise me if the government / BOE did pull out all the stops again....I just don't know how it could be done without creating an even bigger mess in the future.0 -
the key thing is the rate. if you can get a mortgage for about 2%-3% for a good few years, it gives you that option.Procrastinator333 wrote: »It takes years off your mortgage if you start with a larger deposit and then go for a shorter term. Same result.
the size of the deposit doesn't really matter - it's the size of the overpayments i think. because if you shorten the term - your monthly capital repayments are higher and also you have an interest rate risk* between now and when you take out the mortgage.
*not currently too much of a risk with the current rates environment.0 -
D. Wage inflationGraham_Devon wrote: »I just don't know.0 -
the key thing is the rate. if you can get a mortgage for about 2%-3% for a good few years, it gives you that option.
the size of the deposit doesn't really matter - it's the size of the overpayments i think. because if you shorten the term - your monthly capital repayments are higher and also you have an interest rate risk* between now and when you take out the mortgage.
*not currently too much of a risk with the current rates environment.
2-3% is not available to the FTB with 10%.
The size of the deposit does matter because the overall capital is then less at the start of the mortgage.
If you buy today with a mortgage of £200k over 25 years and then overpay during year 1 with £10k. You owe £190k after year 1.
If instead you wait and buy that same place with an additional £10k in the deposit, you still owe £190k. You then select a 24 year term and it is no different.0
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