Is now the right time to buy?

thelawnet

Conrad wrote: »

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.

Property was a safe bet.

We can make no predictions based on the past.

What we can say is that property was relatively cheaper in the past based on numerous measures than at present, and hence there was good reason for prices to rise.

We can't really say that at present.

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.

But others who did the same ended up getting repossessed. Anecdotes don't really prove anything.

Conrad

thelawnet wrote: »

Property was a safe bet.

We can make no predictions based on the past.

It's reasonable to extrapolate the continuing demand to join the property journey and though we likely wont see another 100 fold increase in the next 40 years, it's reasonable to suppose the tax free equity journey will be worthwhile.




But others who did the same ended up getting repossessed. Anecdotes don't really prove anything.

The repo rate is about 0.3% pa, hardly reflective. Like saying we ought not do sports as 5% pa get an injury.

Me in red. Are you suggesting we all sit about worrying for the rest of time? Go read headlines from 1975, 85 and 95, there are always a hotpotch reasons not to commit.

Conrad

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?

5 year fixed rate would be advisable for the majority. Your 'advisor' wants repeat business.

coastline

Basic calculation to look at on the link below...

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

£100,000 at 4% over 25 years with no fees....5 years £87,000 remaining....10 years £71,000.
£100,000 at 6% over 25 years with no fees....5 years £89,000 remaining.....10 years £76,000.

Loughton_Monkey

Points to consider:

1. Don't know your age, but I am assuming, say, 40 years to retirement. You should look up Nationwide House Price Index HERE for 1952 onwards in the UK series. Verify for yourselves the fact that for any 40 year period, the average annual valuation growth has been a minimum of 7.63% and a maximum of 10.23%. There is no guarantee that you will get this growth for the next 40 years, but it is almost certainly going to be "good".

2. Now consider that whatever 'investment rate' you actually achieve, in addition, you will then (at retirement, or before) own the house and be free of rent for as long as you live. It is extremely unlikely that your mortgage repayments would ever exceed what you would pay in rent for an equivalent house. Do the sums yourself of (say) a 'fixed' rent of your mortgage at average 5% for 40 years, then zero for 20-odd years. Put that against a higher rent, escalating by inflation, for 60-odd years. There is simply no comparison. It's throwing money away.

3. Over a 40 year period, the actual price you paid 40 years ago (i.e. say +- 10%) is of marginal significance. This is especially so if you 'trade up' a time or two as most people do. Buying as early as you reasonably can is far better than trying to 'time' such a fickle market. I bought when prices had gone up 20% in the prior year. So that cost me about £1,000. My house is worth 7 figures now.

4. When buying, you will obviously be limited (by salary/rules of the bank... and also by deposit amount) in what you can afford. I strongly recommend buying something and trading up later if your first house is 'not perfect'. They seldom are. At least you will be invested in housing and buying better later on will not be a 'shock' financially.

5. Remember that your interest rate can only go up. Personally, I would make a provision for 5%/6% and ensure that I could afford this. I would then shop around for as low as I could, and 'save' the balance every month to reduce the 'shock' when rates start to rise. Again (personally) I would only consider an Offset Mortgage so that I could use it for higher rate savings when I was flush, and lower rate lending when I needed it.

6. You will find that probably the worst thing you could do is decide to rent now, and then look to buy when (if) prices go down. There is (in my opinion) no possible advantage of renting (i.e. paying someone else's mortgage+) when you don't have to. It just makes saving more for your own place impossible or extremely hard.

Good luck.

naxtek

Interesting.

A 10 year fix does sound appealing, but the highest term I've seen is 5 years on a 90% LTV.

We'd need to take a longer term to make the payments affordable on a 5 year fix. We've decided we don't want to pay more than 700pcm, although if we have a surplus, we will make some overpayments.

If we had a 2 year fix, after those 2 years are up we'd have paid £6237.04 from the principal, which works out at £3118.52 per year. If we take a 5 year fix, the higher interest rate and longer term means we'd only have paid off £9828.11 from the principal after the 5 year fix, which works out as only £1965.622 per anum. Would you still suggest the 5 year certainty is better than risking 2 years and then locking in to 5 years?

wotsthat

naxtek wrote: »

If we had a 2 year fix, after those 2 years are up we'd have paid £6237.04 from the principal, which works out at £3118.52 per year. If we take a 5 year fix, the higher interest rate and longer term means we'd only have paid off £9828.11 from the principal after the 5 year fix, which works out as only £1965.622 per anum. Would you still suggest the 5 year certainty is better than risking 2 years and then locking in to 5 years?

That's not quite a like for like comparison because you're comparing a 2 year fix against a 5 year fix AND a longer term. Extending the term is going to add cost.

Depends how worried you are about rates rising and whether you want to pay off the mortgage sooner or later.

Could you raise a bigger deposit?

http://www.money.co.uk/mortgages/10-year-fixed-rate-mortgages.htm

thelawnet

Loughton_Monkey wrote: »

3. Over a 40 year period, the actual price you paid 40 years ago (i.e. say +- 10%) is of marginal significance.

That depends. Some people will never be able to trade up, for various reasons.

So if you buy into a s**thole, you may be stuck there for a very long time.

butterfly72

We've decided to buy after renting in SW London for years. Now feels the right time as prices appear to be rising again and we're earning nothing on our deposit. We're first time buyers in our 40s :eek: and tbh I wish we'd bought years ago.

chucknorris

butterfly72 wrote: »

We've decided to buy after renting in SW London for years. Now feels the right time as prices appear to be rising again and we're earning nothing on our deposit. We're first time buyers in our 40s :eek: and tbh I wish we'd bought years ago.

Where are you looking to buy? Whereabouts did you rent?