Is now the right time to buy?

naxtek

I recently posted a thread asking about which area to choose, but now I'm not even sure if buying is the right choice.

I'm concerned about the current low interest rates and how long they will last for.

Both me and my partner have stable jobs. My OH is a teacher and should get regular pay increases for the next few years. My job is good and the company is doing very well. We've planned our monthly budget and have left in plenty of contingency in case rates rise. But there obviously becomes a point where we couldn't afford the repayments if interest rates got too high, and that scares me quite a lot.

Added to that, if interest rates do go up then with the increased cost of borrowing, demand for houses may fall and house prices too.

We could come out of our fixed mortgage period and be left with sky-high payments we can't afford to make, on a house that's in negative equity.

We're both currently living with parents and are eager to move out. We could rent, but we hadn't even considered it until now. But if we do that, house prices may continue to go up and then our deposit may no longer be sufficient to get us onto the property ladder, and we won't be able to grow our deposit savings very quickly if we're paying rent.

I know it's only speculation and it's a gamble either way - but I'm really not sure what to do.

What is the general consensus amongst the financially savvy?

FYI we're looking at 90% LTV, which obviously only gives us room for a 10% drop in house prices before we hit negative equity.


[This was originally posted in house buying, but I was advised to repost in here]

chucky

It's always a good time to buy property if you can afford to.

Niv

negative equity is only a problem if you are trying to sell or re-mortgage. If house prices were to fall this much, by the time it happened you would have paid off some of your mortgage whcih would mitigate at least some of this reduction.

chewmylegoff

naxtek wrote: »

What is the general consensus amongst the financially savvy?

Dunno, but you won't find that here.

Look at your own finances and whether you can afford it and what the impact of not buying might be. There is a risk that house prices will fall in the future but if they do there is also a risk that you won't be able to get a mortgage if they do fall. There is also a risk that house prices will increase faster than your salaries and deposit. Buying and not buying are both calculated risks.

Ultimately though trying to time the market with any financial decision is pretty futile because it is not possible to predict the future. The best thing to do is to make your own decision on the basis of your own finances, own experience of your local housing market and own life priorities rather than to rely on what a bunch of random strangers say on the Internet. Obviously though you are now in a catch 22 as if you do that you are following the advice of a random stranger on the Internet.

ILW

Prices may fall, rates may increase, just buy something that allows a little bit of wiggle room and you will be fine.

IveSeenTheLight

naxtek wrote: »

I'm concerned about the current low interest rates and how long they will last for.

From an interest rate perspective, there is no better time to buy.
Capitalise on rates being low and pay down your mortgage before rates (and probably prices) are higher

Conrad

naxtek, consider the millions that bought in the tumultuous 70's, that featured 3 day weeks, national strikes, loosing competetivness hand over fist, uncollected rubbish and this all set to a cultural landscape that produced a lot pessimistic output such as the tune 'Ghosttown' and '1 in 10' by 1981.

Now in my job I often have access to records that show the original prices paid of houses back then. A very typical example round here would be £5000 for a detached house now worth 100 times+ that sum.

So despite the ups and downs, the cold war, OPEC oil crisis', IRA bombings, Argentina going bust, The Falklands war, the Dotcom bust, the 1991 property crash, Iraq wars 1 and 2 etc etc etc, in the long run property is a safe bet.

The vast majority of owners have done well and simply do not fixate on day to day potential money loss as this makes one quite a sad money centric individual.

'Owning' a bit of territory is fundamental to most organisms. A clown fish defends it's anemone to the death, big cats and other mammals stake their territory with scent, birds see one another off their patch, spiders stake out a webbed home. Think of all the benefits other than just the monetary dynamics.

To be frank there is always a cloud on the horizon so if you're worrying about future rate rises now, you will always worry. Your argument is akin to saying I might get injured in a road accident and never work again, or I the UK may shed jobs forever more so it's too risky to contemplate home ownership.

In business I meat retirees that took the plunge 30 odd years ago and now sit very pretty indeed, but if you ask them they tell you they felt nervous in the beginning.
Some in their 40's I meet that really pushed themselves to always get the most expensive place they could and now I find they have £800k in equity and an immense feeling of security.

Does this help?

naxtek

Thanks for your responses.

We took some mortgage advice and the advisor said currently he'd recommend taking a 2 year fix, followed by a 5 year fix (to hopefully get 7 years of low-ish rates). Again, I know there is no certainty, but would anyone disagree with this advice?

lisyloo

Yes I'd disagree and I'd say your advisor is after repeat commission in 2 years time.
You seem to be concerned about interest rates, so why not go for a longer fix.
Would 10 years suit you?
This isn't the best thing for your advisor :-)

wotsthat

naxtek wrote: »

FYI we're looking at 90% LTV, which obviously only gives us room for a 10% drop in house prices before we hit negative equity.

You clearly want to buy a house, you both have decent jobs and expect this to continue, you have a deposit, and a contingency in case rates rise. Why not go for it?

If you're worried about rates rising to the point where, despite your contingency, you can't afford the mortgage then go for a 10 year fix. It'll cost a little more but you won't be worrying about it.

Nothing terrible happens if you're in negative equity either. It's often equated to losing a job but it's really not a big deal. The fear of negative equity is certainly no reason not to buy. Again you could be cautious and use some of your contingency to make some overpayments to get ahead of the game. Don't forget that in year two of the mortgage you'll have paid off some capital so the falls required will need to be bigger before you get into NE.

Almost certainly if you're in the same house in 10 years the mortgage will look very much smaller (due to repayments and inflation) and the mortgage will be a much smaller proportion of your income.

Nothing's certain but I'm sure you'll be fine.

wotsthat

naxtek wrote: »

Thanks for your responses.

We took some mortgage advice and the advisor said currently he'd recommend taking a 2 year fix, followed by a 5 year fix (to hopefully get 7 years of low-ish rates). Again, I know there is no certainty, but would anyone disagree with this advice?

Yes I'd disagree. 5 year fixes are at all time lows. It looks as if base rates will still be low in 2 years but it's much less certain that 5 year rates will be anywhere near as attractive.

You did say you were worried about rising rates - why not fix for 10 years? It'll cost more each month to start with but just call it insurance.