Buy house now or rent?

rosie3983

Hi, I am a newcomer to MSE, looking for some advice...

My partner and I are in our late twenties and have been living with my parents-in-law for two and a half years. We currently have c. £90k saved up for a deposit on a house and are trying to decide whether to buy or rent. We would be prepared to live in the same house for 5 – 10 years.

Buying –

- We would like to start a family soon and would ideally like to have our own home to do this.

- We live and want to buy in the South East, where prices seem to be creeping up again and now don’t appear to be much lower to where they were in 2007/8.

- Mortgage rates are low now, so in one sense buying would appear cheaper than renting – buying a £250k house (fairly basic 3-4 bed) with £90k deposit, the monthly interest at 3.5% would be £466, compared with a minimum of £700-800 per month rent for a very small 2 bed house which wouldn't be ideal with a family.

Renting –

- We fear that prices may be unstable and are concerned about losing money should prices fall significantly if there is a big shock to the market and things go the same way as in Ireland, Spain, USA, etc.

- If we rented (a much smaller house than what we would buy, see above) we could continue to save money, about £15k a year, so this is a feasible if not appealing option.

I would be interested to hear the thoughts of MSE members?

Many thanks in advance.

J_i_m

Sounds to me that you already answered this yourself.

You've saved 90k for a deposit.. In my position that would almost buy my house. I say buy over rent.

rosie3983

Thanks, Jim. I think many would agree. Our concern is really that if house prices were to fall by 30% this would wipe out nearly all our hard-earned savings and we could have bought a much bigger, nicer family home by waiting...We lost money on our last house, so maybe as a consequence we're being overly cautious...

PasturesNew

I'd say buy. You're not looking to "sell it for a profit in 2-3 years" which a lot of people still have programmed into their heads.

Buy a house to live in - and enjoy living in it.

ryan86uk

rosie3983 wrote: »

Thanks, Jim. I think many would agree. Our concern is really that if house prices were to fall by 30% this would wipe out nearly all our hard-earned savings and we could have bought a much bigger, nicer family home by waiting...We lost money on our last house, so maybe as a consequence we're being overly cautious...

Difficult decision. I don't know your financial situation but lets just use some basic maths.

Rent p/m: £500 (£6000 p/a)

Buy a house for £90,000 (mortgage free)

A year later house prices have dropped 6% (unlikely), house is now worth £84600. Financially what have you lost? You are still £600 up compared to renting.

Life is a gamble, you are in a position 1000s would love to be in. Renting is dead money. Why would you give someone £500 p/m to pay their mortgage when you can pay your own off.

Also, it doesn't matter what happens to house prices unless your sole purpose is to make money on it. Most people buy a house for some where to live.

ryan86uk

rosie3983 wrote: »

Thanks, Jim. I think many would agree. Our concern is really that if house prices were to fall by 30% this would wipe out nearly all our hard-earned savings and we could have bought a much bigger, nicer family home by waiting...We lost money on our last house, so maybe as a consequence we're being overly cautious...

You will never buy a house if you kept saying that lol. All you need to do is...

Bite the bullet....

Look the beast in the eye...

and start viewing some house's ;-)

Also, if you can save £15,000 a year when renting if your bought a house with no mortgage you could save £20,000 a year. Complete no brainer for me! BUY!

Hoario54

I am an uber bear and believe housing in the UK (and the South East especially) is dramatically over valued and ripe for a significant correction, but at the moment we have at best slight falls and stagnation.

It will come, I have no doubt about that, but if I had £90k in the bank and faced a similar situation to yourself, despite what all my senses tell me, I would still buy, assuming I could afford a repayment mortgage.

Sometimes, regardless of what you believe is right or wrong or what may or may not happen, you have to make a decision about what matters now, not what may matter in the future.

If I was able to buy a good size family home, with a decent buffer (i.e. deposit), on a repayment basis then I would do so tomorrow. You can't put your life on hold forever, even though I understand your fears, sometimes you just have to get on with it and whatever happens, happens.

I would rather be stuck in negative equity in a decent family size home in a nice community than trapped in a pokey flat somewhere I don't really like but bought "just to get on the ladder"!

Good luck with whatever you choose.

Fire_Fox

Welcome! Property is a gamble in the short term but a fairly solid investment longer term - you should be looking to stay somewhere ten years plus, five is risky. You only lose out if you buy at a peak and sell in a trough, values may well go up and down in the mean time that is the nature of all investments. The key is not to ever have to sell, so agree now what you would do if you split up, or if you got offered a job at the other end of the country, or had twins or even triplets. Could you build an extension? Would you be willing to become landlords?

I highly doubt the market will fall another 30%, that would put so many people in negative equity that either nobody would sell or they'd all be voluntary repossessing and going bankrupt. Many people who lost out did so because they saw ££££ and bought short term, bought in a panic thinking they would miss the boat, took out huge 100% or 125% mortgages. Ask yourselves what mistakes you made last time and don't repeat that.

With that much cash available I would seriously look to buy a family home, you should find it's cheaper than renting. Also with a huge lump sum in the bank many means tested benefits will be closed to you - if you have a difficult pregnancy or sick baby, fall ill or injured and cannot work you could find you have to start chipping away at your savings which is soul destroying. If you have your own home and need extra income through no fault of your own you could take in a lodger or claim means tested benefits.

ryan86uk

Fire_Fox wrote: »

Welcome! Property is a gamble in the short term but a fairly solid investment longer term - you should be looking to stay somewhere ten years plus, five is risky. You only lose out if you buy at a peak and sell in a trough, values may well go up and down in the mean time that is the nature of all investments. The key is not to ever have to sell, so agree now what you would do if you split up, or if you got offered a job at the other end of the country, or had twins or even triplets. Could you build an extension? Would you be willing to become landlords?

I highly doubt the market will fall another 30%, that would put so many people in negative equity that either nobody would sell or they'd all be voluntary repossessing and going bankrupt. Many people who lost out did so because they saw ££££ and bought short term, bought in a panic thinking they would miss the boat, took out huge 100% or 125% mortgages. Ask yourselves what mistakes you made last time and don't repeat that.

With that much cash available I would seriously look to buy a family home, you should find it's cheaper than renting. Also with a huge lump sum in the bank many means tested benefits will be closed to you - if you have a difficult pregnancy or sick baby, fall ill or injured and cannot work you could find you have to start chipping away at your savings which is soul destroying. If you have your own home and need extra income through no fault of your own you could take in a lodger or claim means tested benefits.

That's a pretty solid reply, I completely agree. Good luck with either option you decide to go with.

rosie3983

Thank you to everyone for their replies. I really appreciate your input.

jgh

PasturesNew wrote: »

"sell it for a profit in 2-3 years"

That only works if you no longer require somewhere to live.