Making the leap from renting to buying

Daddy_Bear_2

Pooky wrote:

Really would value some input on this.....


Any suggestions would be wonderful.......... Thanks

You could do worse than spend sometime reading the posts at https://www.housepricecrash.co.uk If anything the posts and the news headlines posted will give you another view of what is happening in the market, they disect the information, particularly the headline info on house prices which tends to come from the big banks or estate agents. These guys have an interet in talking up the market. It isn't a good time to be buying and all the facts are there to suggest that. You buy now and end up in negative equity you won't be able to move. Think about that.

Daddy_Bear_2

dragonfly02 wrote:

@bluesnice it seems to me that you have a huge advantage over many other buyers, you have a hefty deposit in place and your earnings are pretty high, as you said though the mortgage calculators and house prices are petty at the moment.

Have you considered a self cert mortgage? ok you will have to pay a larger deposit than on a normal house but it appears to me that if you have 15-20 grant deposit in place you are in a good position

It might be worth looking into

It's actually fraudulent to make false claims on self cert applications but everybodys been at it. This is one of the reasons that house prices have been able to go so high and people have kept borrowing. Stay well clear, these things are going to be the next endowment scandal when it all goes wrong. If you can't afford to buy when you are good earners you should be asking yourself 'how the hell can it be like this?' The answer is, it can't and it will change.

"Capital Economics have done a lot of work on affordability. They say if you include mortgage repayments, which you should, and unsecured debt, the debt service burden for the country as a whole is greater than it was at the last peak in 1989/90. Halifax says the opposite, claiming affordability levels are fine; that only 19% of average earnings are spent on housing costs. But they use a house price of £163,000, when we know from the land registry that the average house price is £188,000, They use a loan-to-value figure of 75% (ie, they assume deposits of 25%), which gives them a much lower loan than if they used the real data. As an average income number, they use £35,000, when the average earnings of a male who’s employed is £28,830. On top of this, they don’t use a repayment mortgage to do their figures, but an interest only one. So what happens if you use what I consider to be the correct numbers? You get not 19%, but 36%, the same level as the high recorded in 1990. "

Daddy_Bear_2

jma wrote:

The reason I posted was that I was wondering if property auctions were worth considering? I don't know how they work, does one have to fork out money up front before arranging a mortgage? There is potential for a bargain, if maybe not liveable straight away?

might be worth reading this jma, from The Economist today;

Mar 3rd 2005
From The Economist print edition

Today it is often much cheaper to rent than to buy a house

“IT IS always better to buy a house; paying rent is like pouring money down the drain.” For years, such advice has encouraged people to borrow heavily to get on the property ladder as soon as possible. But is it still sound advice? House prices are currently at record levels in relation to rents in many parts of the world and it now often makes more financial sense—especially for first-time buyers—to rent instead.


Homebuyers tend to underestimate their costs. Once maintenance costs, insurance and property taxes are added to mortgage payments, total annual outgoings now easily exceed the cost of renting an equivalent property, even after taking account of tax breaks. Ah, but capital gains will more than make up for that, it is popularly argued. Over the past seven years, average house prices in America have risen by 65%, those in Britain, Spain, Australia and Ireland have more than doubled. But it is unrealistic to expect such gains to continue. Making the (optimistic) assumption that house prices instead rise in line with inflation, and including buying and selling costs, then over a period of seven years—the average time American owners stay in one house—our calculations show that you would generally be better off renting (see article).


Be warned, if you make such a bold claim at a dinner party, you will immediately be set upon. Paying rent is throwing money away, it will be argued. Much better to spend the money on a mortgage, and by so doing build up equity. The snag is that the typical first-time buyer keeps a house for less than five years, and during that time most mortgage payments go on interest, not on repaying the loan. And if prices fall, it could wipe out your equity. In any case, a renter can accumulate wealth by putting the money saved each year from the lower cost of renting into shares. These have, historically, yielded a higher return than housing. Putting all your money into a house also breaks the basic rule of prudent investing: diversify. And yes, it is true that a mortgage leverages the gains on your initial deposit on a house, but it also amplifies your losses if house prices fall.


“I want to have a place to call home,” is a popular retort. Renting provides less long-term security and you cannot paint all the walls orange if you want to. Home ownership is an excellent personal goal, but it may not always make financial sense. The pride of “owning” your own home may quickly fade if you are saddled with a mortgage that costs much more than renting. Also, renting does have some advantages. Renters find it easier to move for job or family reasons.


“If I don't buy now, I'll never get on the property ladder” is a common cry from first-time buyers. If house prices continue to outpace wages, that is true. But it now looks unlikely. When prices get out of line with what first-timers can afford, as they are today, they always eventually fall in real terms. The myth that buying is always better than renting grew out of the high inflation era of the 1970s and 1980s. First-time buyers then always ended up better off than renters, because inflation eroded the real value of mortgages even while it pushed up rents. Mortgage-interest tax relief was also worth more when inflation, and hence nominal interest rates, was high. With inflation now tamed, home ownership is far less attractive.


The divergence between rents and house prices is, of course, evidence of a housing bubble. Someday prices will fall relative to rents and wages. After they do, it will make sense to buy a home. Until they do, the smart money is on renting.

Pooky

Thanks for all the replys to this......

We know we should be waiting for the market to drop.....infuriating just the same tho when you're pouring money into a landlords pocket.

I'd really like to see some control over rent in the future......if the banks not prepaired to lend us money to cover a £600 a month repayment then why should a landlord expect it.....madness!! The answer does not lie in moving to a cheaper property - yes we could move to a 2 bed flat and halve our payment - but when theres kids and schools involved it's never that easy. Torn between doing the best for your kids now and worrying about their security in the future!! Oh to be a parent eh!!

Also some sort of regularity towards other incomes....for example we can't get housing benifit because we get "income" from maintenance payments from ex, but the bank wont take maintenance as "income" because it could be irregular!! But I guess thats not the point in hand!!

It's about time banks were a little more flexible with their approach to mortgages.

Rant over! Thanks again to all who posted

dragonfly02

@daddy bear, whilst you are correct in saying that it is fraudulent to claim you are earning more than you infact are, i was not suggesting that people should do this.

I meant in my situation my husband makes extra money through buying and selling, I also buy pallet loads of goods and sell through ebay or carboot sales, this brings our monthly earnings high enough for us to repay a larger mortgage, however as these earnings are not guaranteed and we do not have accounts for these things it is impossible for us to use these figures in a "normal" mortgage so I personally would go for a self cert mortgage, only problem I don't have the deposit needed.

Excuse my terrible spelling (too busy thinking about what to write not how to spell it) lol

Just my opinion, apologies for not explaining fully

pickle

I hate paying rent also. I pay £650 a month. But think about how much interest you'd be paying to the bank - that's dead money too. Work out how much rent you're paying versus If house prices go down, you're better off renting in the short-mid term as you're effectively making money by buying in at a lower price. That also translates to how much interest you pay long term as well, especially when the interest rates will be rising. The interest rates will go up as inflation is going to start biting soon, how far is anybodys guess. Oil prices are starting to rise and that will affect inflation also. I know it's frustrating - I go off on one of my "i must have a house now!" tangents every now and again but i quickly pull myself back as I don't want to pay too much for a depreciating asset. It's just not worth it.