Buy or rent in up and coming area?

saverstacey

I know that none of you have a crystal ball, but would welcome your opinions here

We are about to sell our property (basically we can't afford it, the mortage is too expensive for us at the moment). We are trying to decide if it is best to rent for 3 years before buying again (will have 2 incomes then instead of one) or to buy straightaway a much smaller property that we can afford now with the intention of selling and buying again in 3 years when we can afford bigger and better.

Generally, after reading all the recent threads regarding house prices and a possible correction, gut instinct says 'rent' and buy again in 3 years when we can afford what we really want. HOWEVER, we live in an 'up and coming area' (Ilfracombe, Devon) and my family feel that if we step off the property ladder we may never get back on as they feel property will continue to rise here whatever. For example, we bought our current property 2 years ago for £270K, it has been valued recently by 3 agents at £325-£350K.

Signs that I think our area is up and coming- we are a small town with no high street stores but Tesco opened a store here 6 months ago. Lots of properties being done up or converted into luxury flats. Lots of property for sale and beoing sold. Trendy cafes and wine bars etc opeing more and more. 2 new estate agents opened this year making a total of 5 in the town. Surrounded by very expensive areas- Woolacombe, Croyde etc. Barnstaple (nearest larger town) is having a lot of money invested and new road links etc. Does that sound like up and coming to you?

What do you think? Any opinions gratefully received

Romani_Ite_Domum

As you seem to have to sell anyway, renting for a couple of years would not be a bad idea. It really depends on the area you live.

I have found this site to be fairly accurate with regards to what's happening in my area.

http://mouseprice.com/property-stats/exeter/ilfracombe-property-ex34.aspx

The graph of average house prices is pretty broad as it is all of the EX postcode.

http://mouseprice.com/property-stats/exeter/ilfracombe-property-ex34-3.aspx

From the graph, it looks like prices have peaked. Interesting that your house has increased in price by 20% although the graph would show an increase of nearer 5%. Have you done anything to increase the value of the property in the 2 years. I would say that the £325K valuation is ambitious and you would probably achieve more like the £300K mark. ( 8% less than asking price).

Once you have put your house on the market, you will have a better idea of the real market in your area. If it flies then it could be an up and coming area.

My feeling is that if your circumstances are going to change in the next 3 years and you will want to move again, you would be better off renting.

keeperbear

You need to consider the transaction costs involved in selling to rent. Estate agency fees and legal fees will be quite a large sum. If you repurchase in three years, you will have to pay further legal fees and stamp duty. Add all these potential fees together and consider them alongside the "savings" from renting rather than paying your mortgage. Do you know if renting will save a worthwhile amount of money? I would research the rental market before doing anything. Finally, if you are in a decent upcoming area, in three years you may not be able to repurchase your old property.

Regardless of the monetary factors, I would never sell to rent. Do you want to pay rental application fees to the estate agent? Do you want a landlord who can boot you out in six months? Do you want the hassle of finding a property? Do you want restrictions on whether you can have pets etc? Do you want arguments about damage to the fixtures and fittings when you move out? I would never rent again. Renting does sound cheaper than a mortgage, but you have to factor in the non-financial factors as well.

saverstacey

Thanks for the replies. We HAVE to sell our exisiting property- no way we can keep up with the huge mortgage. Renting a decent house would cost the same as an interest only mortgage on a much smaller property than we have now (about £750 per month rather than our current mortgage of £1500 per month). As interest only is effectively renting from the mortgage company, we would I suppose be gambling on the prospect of the house rising in value during the 3 years we intend to live in it. But we wouldn't have the potential problems from renting?

Reason for wanting to move again in 3 years is because OH will have finished studies and our income will double. We have a big family and if we have a larger income we would prefer to use it to buy a home that we intend to stay in until the mortgage finishes!! Anything we can afford to buy now would purely be to keep us on the property ladder in case prices in our town keep rising and we could then find ourselves priced out of the market.

Any more opinions please?

prudryden

If your area is "up and coming", my opinion would be to stay on the property ladder with a place you can comfortably afford. If you don't leverage yourself too much, you will be able to sit out any stagnation or down turn in the market or even the least likely scenario - a house price bubble crash. The higher priced houses will fall preportionally more than the lower priced.

Romani_Ite_Domum

saverstacey wrote: »

Thanks for the replies. We HAVE to sell our exisiting property- no way we can keep up with the huge mortgage. Renting a decent house would cost the same as an interest only mortgage on a much smaller property than we have now (about £750 per month rather than our current mortgage of £1500 per month). As interest only is effectively renting from the mortgage company, we would I suppose be gambling on the prospect of the house rising in value during the 3 years we intend to live in it. But we wouldn't have the potential problems from renting?

Reason for wanting to move again in 3 years is because OH will have finished studies and our income will double. We have a big family and if we have a larger income we would prefer to use it to buy a home that we intend to stay in until the mortgage finishes!! Anything we can afford to buy now would purely be to keep us on the property ladder in case prices in our town keep rising and we could then find ourselves priced out of the market.

Any more opinions please?

If I am reading this right, looking at your figures, I am not sure you even have an option to buy again.

If you are paying £1500 a month interest now, you have a mortgage of around £300K?
With selling costs it looks like you have very little equity in your current house.

I take it that you had 2 incomes when you bought as even if you got somebody to loan at 5 times salary, you would need an income of £60K to do this and this would be a very good salary for Ilfracombe and around.

If you have a large family, are you going to be able to get a large enough house with a small deposit and borrowing capacity of around £150K?

On the bright side, there appears to be 4 bed houses to rent in the area for circa £850pm. Even if the area is "up and coming" prices won't be much more in 3 years time. In fact it could be just the right time to step back onto the ladder.

pinkshoes

If you are paying £1500 a month interest now, you have a mortgage of around £300K?
With selling costs it looks like you have very little equity in your current house.

If they bought for £270k 2 years ago and it's now worth a minimum of £325k, then surely they should have at least £55k of equity, and a maximum mortgage of £270k presuming they had no deposit?

Personally, I'd never rent again. The stress of the landlord being able to terminate the contract whenever, having to pay for damage, needing permission to put hooks up on the wall etc...

Also, if the housing market "corrects" itself, then many landlords could have to sell their properties, so you risk being given your notice, or they might increase the rent dramatically to make up for the loss in house price.

Romani_Ite_Domum

pinkshoes wrote: »

If they bought for £270k 2 years ago and it's now worth a minimum of £325k, then surely they should have at least £55k of equity, and a maximum mortgage of £270k presuming they had no deposit?

I will leave this to the OP to answer.


I apologise if I have been a tad negative. I have a friend that is in a similar situation further west than Ilfracombe( TR postcode). The 3 valuations were between £340K and £375K. They went on at £339,950 2 years later they have just dropped to £320K and still have not sold. During this time they have MEW'd considerably. They have less equity in the house now, then when they bought it.

saverstacey

The outstanding mortgage is about £235K. As it is a self-cert mortgage (my OH was self employed when we took it out) the interest rates are higher. I think we are paying 7.4% variable rate. Our equity obviously depends on the price we get for the house, but we put down £35K when we purchased.

The cheapest 3/4 bed houses here start at £150K. We would probably be looking at around £180K for which we could get something 'quite nice'.

Current income is £35K (just me, employed not self-employed)

Doozergirl

I would look at properties to rent and buy and see what represented better value for money, whether that be a lovely big house to rent or a smaller place to call home. You have to decide what is more important.

Talk of rapidly rising prices in London does seem to confuse people into thinking they are rising everywhere. In my area, not very much has happened in three years.

Devon and Cornwall I think are very susceptible to price falls with so many people buying second properties. The agents springing up may have to do with quite an optimistic year last year; I would wait and see whether the recent rate rises have dampened people's interest.

saverstacey

pinkshoes wrote: »

Also, if the housing market "corrects" itself, then many landlords could have to sell their properties, so you risk being given your notice, or they might increase the rent dramatically to make up for the loss in house price.

Thats a point- hadn't thought about that. Thanks.