First Time Buyers - Enough is Enough!

MattLG

T4i wrote:

Apart from selling drugs or robbing a bank how the hell do people like me get there OWN house?

Wait.

I rent too. I've rented for a few years now. I've been investing elsewhere for the time being. The crash will come. Then you can have lots of houses.

MattLG

dougk_2

Then again maybe it won't!

But I suppose you will still have your savings.

Its sound like T4i is not in the position to have large amounts of savings and so if a so called crash happens and there is mass unemployment and interest rates are at say 6% (mortgage rate 7%+) will he be able to afford a mortgage?

Pal

JanCee wrote:

Surely the people who can afford the above average properties are those people on their 2nd, 3rd or 4th move, with equity from their existing property?

No - this is a common misconception about the housing market. When someone earns equity in their house, they trade up by spending that equity on their new house. However the house they are buying has gone up in price by the amount of the equity they earned in their last house. I.e. they would have been no worse off had they simply bought the bigger house in the beginning.

The only reason people don't do this is that they can't borrow the money to do so. They have to wait for their salaries to increase by more than inflation to allow them to borrow more. The equity also means that the individual doesn't have to save up a deposit in the way that FTBs have to. This doesn't impact the house price, only the mortgage lending.

Obviously this is simplistic view, but rising house prices do not actually benefit anyone except those who downsize or those who inherit. Paper profits are just recycled into paper assets when a new house is bought.

People that have no intention of selling to downsize or rent are better off if house prices stay low as they are more likely to be able to sell up and move quickly if they need to.

dougk_2

Pal,

I agree about 90% what you are saying!

It seems the expectation of a FTB (or some of the ones posting here at least) is to move straight into a 3+ bedroom house.

It seems the same with cars - A 17 year old or someone just passsing their test no longer is happy with an "old banger" worth £250 (like I started off with) and wants a several thousand pound car.

Isn't it just the case that expectations are far greater than reality and because of the culture of easily being able to get credit at a young age the main cause of this?

Of track a bit on the subject but a valid issue I feel.

Pal

While I agree that expectations are probably too high it isn't really the point I was making.

My point is that no-one really benefits from high house prices. The gains are almost always pushed into a new house. Often when people trade up they buy a larger place and INCREASE the size of their mortgage debt, despite the equity they have used as a deposit. In almost all cases, if they had been able to save the deposit and get the mortgage based on their salary, they would have been better off going for the larger house to begin with.

There is no real profit from higher house prices except if you downsize, sell to rent, inherit or are a BTL investor who sells up at a profit. Constant home owners would be better off if prices were low because it reduces their mortgage interest payments and capital outlay.

deemy2004

Yeh, I keep thinking about the £3,000 billion of equity locked up in properties ..... financed by about £900 billion of mortgages... a lot of money, hence interest rates now have a much bigger impact on the consumers than the corporate sector so my thinking is that the UK could continue growing as a rate hike to say 6% would not be able to stop growth, but the impact on the housing market would be pretty severe, as prices get marked down, people will 'feel' much poorer as they will not be able to sell for the price they had in their mind...

meanmachine_2

dougk wrote:

Pal,

I agree about 90% what you are saying!

It seems the expectation of a FTB (or some of the ones posting here at least) is to move straight into a 3+ bedroom house.

Why do you keep going back to this point, even when it's been invalidated?

It is perfectly reasonable for someone on an average wage to want to buy an average house.

It is NOT reasonable (or sustainable) to expect someone on average wages to buy a below average property. Anyone who encourages anybody else on this site to do so should be ashamed of themselves. That is the biggest WASTE of money I can think of.

Until the bubble bursts, it is folly to buy. Simple.

Average wages are £25K. When the average house price returns to 100K (currently £180K!!!!), that is the time to buy. And it's got nothing to do with greed. That is just sensible.

Woby_Tide

whats an average house, does it include average flats? And is that average to a FTB or average to someone already on the ladder? i.e. on a average wage do you expect to be able to start at 3 bed house say, whilst on below average wages you'd start witha 2 bed flat and above average wages a 4/5 bed property. Or are you saying that on average wages you should be able to start with a reasonably 'average' first time property i.e. a 2 bed flat(this is somewhat biased from location as current area 2 bed flats are very common and very much first stepping stone, if i was starting out in hometown say, it would more than likely be 2 bed terraced house more than likely as an equivalent)

T4i

dougk wrote:

Pal,

It seems the same with cars - A 17 year old or someone just passsing their test no longer is happy with an "old banger" worth £250 (like I started off with) and wants a several thousand pound car.

Isn't it just the case that expectations are far greater than reality and because of the culture of easily being able to get credit at a young age the main cause of this?

I'm 25 with 5yrs no claims. 1.6L Focus £580 full for me. It is coming down but slowly.....I feel very sorry for new drivers now. A work pal who is 18 and been driving 6 months £1300 fire on a 1.1L nova not worth more than £250. Thats just rotton.....

I cant wait to have my own place.... :A

slater14

Woby tide,

Whether it is 1 bed flat or 10 bed mansion doesnt matter. The thing that you should be looking at is the average price of a property in this country.

To give you a very simple demonstartion of what is trying to be shown by the likes of meanmachine, deemy etc is this -

To buy the average property today you would need to be on an average UK wage of £51,000

The average UK wage is in fact £23,500

So, for the average man to buy the average property in UK he would need to borrow to dangerous levels somewhere close to (or over) 6 times salary. The norm used to be 3 - 3.5 times salary.

I am not waiting for a crash (it will hurt me financially).

I am bringing evidence together from many sources and making an informed decision as to the state of the market.

I am not thinking that well, maybe peoples expectations are higher or maybe they expect more today or maybe the spend more going out today....etc etc (yawn) etc.

Maybe's dont cut the mustard when you're talking about making an investment that could destroy your life for 10 or 15 years.