Buying a house short term?

sopaz

First post, sorry its a question!

I'm considering buying a house, however I might well have to move in two years time.
I know its impossible to predict the future, but I'm looking for opinions as to whether this would be a bad (or very bad?!) idea with the current economic climate...?
House would be ~100k, LTV 75% and in an area close to a University that should in theory be easy to let if it wouldn't sell...


Some background:
I'm a PHD student (with ~2 years left) in the city myself and my partner grew up in. We might well stay here if I get a job here after my PHD, but its very likely I would have to move for a job at some point.
We are both happy with this, and (naively?) thought we could sell the property here, or rent it out and have the potential of moving back 'home' at some point in the future.
I'm now having cold feet however as the more I read the more paranoid I become, with prices continuing to fall and more desperate sellers turning to renting out their properties.
The mortgage I have had principally agreed has a rate of ~3.7%, which means mortgage payments would be cheaper than my current rent (and I would be gaining an asset) but not by much... (and the rental income on properties I am interested in would likely cover the mortgage payments, but again not by much)

Any thoughts?

MacMickster

Add in purchase and sale costs. Decide how likely it is that prices will rise or fall over the next 2 years. Factor in how long it is taking houses to sell in your area (and how much longer it will take if interest rates rise and property prices fall) then make your decision.

Personally, I don't believe that this is the time to be buying for the short term.

jimjames

I'd say that was a bad move. Assume as best case prices move nowhere in that time then you'll have all the costs of selling plus costs of buying initially which could be up to £2k. Any repairs on house that are not visible in survey need to be considered too.

Add all those costs in and renting may be cheaper option. It isn't comparing like with like to just look at rent vs mortgage amount per month.

If you think prices might be lower in 2 years time then you need to factor that in as well.

sopaz

Thanks for replying!

If my current rent doesn't change, I'll spend 12k in two years. This seems like a lot, but in reality it's only mortgage payments + initial buying costs!

Any other costs or maintenance and i'm going to be worse off, and then if/when prices fall :eek:


Another question: If I bought and after 2 years I decide to let the place out, would the mortgage provider generally allow this?
As far as I know BTL mortgages have higher rates, so I presume at least the rates would change...

Maybe its better if I stay renting!

brit1234

sopaz wrote: »

Maybe its better if I stay renting!

I think you said it right with that last coment. I strongly believe house prices will continue to fall due to a large host of economic and social factors.

Now if you managed to save extra deposit in that 2 years you would be financially up when it comes to a move and your buying property will be a lot cheaper cancelling out rent loses and more.

If you buy now you will incur various fees, loose equity and even have to pay stamp duty in two years time if you manage to sell.

Renting now gives you the flexibility, buying may be more viable if you were planning to stay a lot longer than 2 years.

Caveat_Mortgagor

sopaz wrote: »

I'm looking for opinions as to whether this would be a bad (or very bad?!) idea with the current economic climate...?

its very likely I would have to move for a job at some point.


I would be gaining a (depreciating) asset

Any thoughts?

I think you already know the answer. Ive only added one word - the rest is all your own work!

franklee

sopaz wrote: »

If my current rent doesn't change, I'll spend 12k in two years. This seems like a lot, but in reality it's only mortgage payments + initial buying costs!

If you want to see how little you would have paid off the mortgage in two years have a play with the calculator:

http://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator

Rent doesn't look so bad now does it?

sopaz

Caveat_Mortgagor wrote: »

I think you already know the answer. Ive only added one word - the rest is all your own work!

Indeed! At first I was all for it, but after some viewings I have realised every house in our budget/area on rightmove has been up for sale for months! And the more I read, the more I realise the situation isn't going to improve quickly...

franklee

Mortgage 75,000
Interest 3.7%
Term 25 years.
From the mortgage calculator:
Repayment mortgage £384 per month.
After two years your remaining debt is 71,212.

Rent 12K in two years, that's 500pcm. But you keep the income on your 25K deposit, say that's earning 3.7% interest, that gives you £77 pcm. So outgoings are 500-77=423.

Approx. monthly difference 423-384=39. Tiny.

With buying you paid off approx. 3,788 from your mortgage. But you had more costs.

Rough buying costs, solicitor say 500, survey several hundred say 500. Rough selling costs EA say 1K, solicitor another 500. Total approx. 2,500. Plus mortgage arrangement fee, buildings insurance, maintenance and repairs?

Then at the end of the two years interest rates may go up! Of course rents may change as well.

It looks abut break even to me. For that you have the risk of house price changes, being tied down, more hassle and perhaps a missed opportunity to buy the house you really want in two years time when you've worked out where you want to move if you can't sell this one.

sopaz

franklee wrote: »

Mortgage 75,000
Interest 3.7%
Term 25 years.
From the mortgage calculator:
Repayment mortgage £384 per month.
After two years your remaining debt is 71,212.

Rent 12K in two years, that's 500pcm. But you keep the income on your 25K deposit, say that's earning 3.7% interest, that gives you £77 pcm. So outgoings are 500-77=423.

Approx. monthly difference 423-384=39. Tiny.

With buying you paid off approx. 3,788 from your mortgage. But you had more costs.

Rough buying costs, solicitor say 500, survey several hundred say 500. Rough selling costs EA say 1K, solicitor another 500. Total approx. 2,500. Plus mortgage arrangement fee, buildings insurance, maintenance and repairs?

Then at the end of the two years interest rates may go up! Of course rents may change as well.

It looks abut break even to me. For that you have the risk of house price changes, being tied down, more hassle and perhaps a missed opportunity to buy the house you really want in two years time when you've worked out where you want to move if you can't sell this one.

Thanks for that, I'm just playing with the calculator now, its pretty scary!

I guess the main point is I could buy a cheap place now (which may end up being very expensive in the long run!) or wait it out and hopefully have the means to buy a much better place when I know what's happening.

I also guess unless a super bargain comes up its not a good idea to be buying or selling right now!

Benji

Renting the property out is likely to be a financial struggle with a 75% mortgage to support. Rent DOES NOT come in 12 months a year, every year . If your tenants decide to stop paying, it can take 4/5 months to get them out. 4/5 months without rent! The same category of tenants might leave the place in a state - £2/3k to get it re-letable. If your tenants are great, you'll still have a void between when they leave and when new tenants move in, plus the cost of 'refreshing' it for new tenants and the costs of actually finding new tenants.