First time buyers, some unbiased real opinions needed

mr_ouija

Good morning everyone.

My wife is a regular poster on mse and surfed this forum daily.

We had a discussion this morning about possibly pulling out of our first house purchase due to several threads she has read on here.

What I'm after is an honest opinion, I'm aware no one can predict the future, however, I'm sure we can all agree some type of correction will have to occur.

Do you think now is a really time to buy or just as good a time as any? As interest rates are nearing 6% do you feel this may increase greatly in two years time?

The situation is basically this. We have a 2 year fixed rate mortgage of 5.34% on £174,999. We are worried that, at the end of the 2 year, the 'correction' would have occurred and that interest rates will have rised enough to ensure a £100-£150 increase in our mortgage repayments.

I'm just wondering if I could get any words of wisdom/advice/experience.

As I said before, I know that no one has a crystal ball, however, there may be some on this board who will have more of an idea as to what 'may' happen, than my wife and I.

We will be making the decision by tomorrow.

olly300

Someone posted on here a day or so ago (can't remember the poster's name) that when you buy a property if you can't factor in the fact that interest rates are going to rise during your repayment period, and you can survive on beans on toast to pay the mortgage then don't buy .

Doozergirl

I will tell you now that there is no-one on this board that can tell you what will happen.

If you are looking at the house as a long term home, then it doesn't matter what house prices do. It may matter what interest rates do if it affects whether you can afford to pay your mortgage, but a different solution would to be to go for a longer term fixed rate than 2 years - maybe 5 years instead which will protect you from any rises until a time when you will hopefully be earning more money anyway.

I've been on this board for two years and people, during that whole time, have been saying that not only is the crash coming, but it has already started. They've been wrong thus far. Occasssionally people seem to be under the impression that house prices will continue to rise forever, they are wrong as well. There has to be a point at which banks will stop lending such high salary multiples that allow people to buy at higher prices.

Nobody knows at all and you must appreciate that half of us talk out of our backsides anyway. We all like to think we know what we're talking about but no-one can predict the future.

Really, if this is long term for you and you are not taking on silly salary multiples in order to get your mortgage then I should hope you'll be fine. You have to take on a responsible amount of debt; we will all agree on that (pretty much!). Over time, inflation will decrease your mortgage payments, it's just whether you can make it through the first few years.

If you are that worried, extend the fixed rate period.

Debt_Free_Chick

mr_ouija wrote: »

Do you think now is a really time to buy or just as good a time as any?

As good a time as any. Whatever the "investment" you can't time the market i.e. you can't second-guess what the market will do over the next 6, 12 or 999 months. You can have an opinion, but who knows what the future holds?

As interest rates are nearing 6% do you feel this may increase greatly in two years time?

See above. But I will say that there are "political pressures" for getting interest rates low, to boost/maintain the economy.

The situation is basically this. We have a 2 year fixed rate mortgage of 5.34% on £174,999. We are worried that, at the end of the 2 year, the 'correction' would have occurred and that interest rates will have rised enough to ensure a £100-£150 increase in our mortgage repayments.

You could consider a longer fixed rate deal. What would the interest rate/repayments be? After two years, you could remortgage to another fixed rate deal, which might not show such an increase (depends on what the view is, then, on future interest rate movements). You could remortgage to interest only - if only for a temporary period to help cashflow. You could remortgage to a longer term - again, if only temporarily.

As I said before, I know that no one has a crystal ball, however, there may be some on this board who will have more of an idea as to what 'may' happen, than my wife and I.

I doubt it If so, they would be "out there, making a deal" and wouldn't have the time or inclination to be posting here

We will be making the decision by tomorrow.

Do your budgets on a number of different "what if" scenarios. Factor in some "contingency" in case the worse happens e.g. have some things that you would sacrifice e.g. Sky, second car etc if you had to, in order to meet the mortgage payments. Similarly, have a list of "no-go" items that would never sacrifice.

And build some "rainy day" savings into your budget, to give you cash to help you through "the hard times".

HTH

amcluesent

>We have a 2 year fixed rate mortgage...<

In 2009, Gordon will be facing an election so I expect he will be gerrymandering like crazy to keep the 'feel good' factor going. However, there is no doubt that globally interest rates are going up, mainly to entice the Chinese to keep buying Western debt, so the UK will have to keep its bond rates similar to the US or risk losing out.

My recollection from the 1988-1992 boom/crash was that dodgy houses became almost as expensive as those in 'good' estates. Of course, in the crash these houses then fell quickest and further in value. And a quick look at the thread on land registry prices shows that there are very real falls in house values now, at least outside London.

If the place you are buying is only 'so-so' in terms of location (i.e. scruffy gardens), quality of schools, many BTL nearby, ex-council etc. I would be minded to pass for now. IMHO of course!

hearts

Good advice from DG. Especially the longer fixed rate.
Local knowledge is important too. What are you buying? Flat/house? Are houses/flats still shifting in your area? Personally I would avoid new build flats.
Remember this is firstly your home and secondly an investment. As long as you are intending to live in it for the forseeable future then any house price movement will only be an annoyance as sooner or later it will recover.
Affordability is the main factor.
Buy your house and have a happy future. ;-)

saunaboy

We've just had an offer accepted for 125k, 3 bed place in an area that's nice enough & on the edge of a stupidly expensive area (to cut long story short, there's a dean, one side you'll pay 250k, our side you'll pay 125k).

We're more than aware of the fact that we'll not make anything like the gains some friends have made in their houses. They can't understand this as much as I've tried to explain it to them that just because they bought at 30k and can now sell at 120k, this does not necessarily mean that they guy who buys at 120k can go & sell sometime down the line at 210k.

I've always been a bit old fashioned about homes (not 'houses') and figure that you buy em to 1) live in and 2) own one day instead of having to rent forever. We've bought at 2.1x combined salaries so while a massive interest rate % rise would cost us big time, we'd still be solvent.

There's only one thing that stresses me about the whole thing... that if there were to be a crash, and we needed to move, then we'd be !!!!!!ed. But remember here, we wouldn't be the only ones. There'd be literally millions in the same situation so I'm banking on this not happening.

As for all the continual BTL issues: I've heard many people saying that they're all doomed. This simply doesn't apply to a vast amount of em. eg. my current landlord. He bought at 15k 10 years back and has a mortgage bill of about £100/month. I pay a very reasonable £450/month rent. It'd take an absolute catastrophe for him to be forced out. There are whole streets in Newcastle that were bought at 5-10k each when derelict. They're now BTLs generating high income. The same applies there.

AND, #1 law of economics. Supply & demand. If all the BTLs decide to bail out, doesn't this also mean that all their tenants will need rehousing somewhere, thus creating an increase in demand to match supply ????


I'm buying because I don't want to rent forever.

phlash

Whether it looks likely or not that interest rates will increase in years to come, you should prepare as if they will rise. Look upon it as if interest rates were at 8% in two years time, then if in two years time they are below that then the difference is a bonus.
If you don't look at the scenario in this way, then IMHO it is gambling. On the size of your mortgage, interest rates wouldn't need to rise that much to add an extra £100-£150 per month to your repayments.
Here is what the interest rate future is predicted to look like:
http://www.swap-rates.com/UKSwap_extended.html

I wouldn't pay too much attention to anything beyond 2 years, look at how wrong the prediction of 1 year ago was wrong! But it is useful for predicting what the Bank of England is going to do in the few months to come. 6% is very likely.

FYI, I'm waiting to buy, there's too many inflationary pressures around to secure interest rates at their historical lows of the past ten years. Core inflation in the last month was up 0.3%, so don't think inflation is going to go away that easily.

The UK has been binging on MEW, debt and over spending, eventually the price will be paid economically and in the pocets of the masses.

saunaboy

can I also comment that it's an old house. Classic design etc. There were a few things we looked for...
1) ability to improve house to help guard against any drop
2) NOT A NEW BUILD
3) area on edge of unaffordable, fashionable area in hope that there's spillover. The turnover in the posh place is very low so no-one can ever buy into there regardless of income. But we still get to benefit from shops/bars etc.

phlash

saunaboy wrote: »

can I also comment that it's an old house. Classic design etc. There were a few things we looked for...
1) ability to improve house to help guard against any drop
2) NOT A NEW BUILD
3) area on edge of unaffordable, fashionable area in hope that there's spillover. The turnover in the posh place is very low so no-one can ever buy into there regardless of income. But we still get to benefit from shops/bars etc.

You sound very desperate to convince everyone else that you've made the right decision?

saunaboy

not really, just convinced that we've tried our best to be sensible about it and passing on the main points.

Isn't that the point of this forum ???

some friends here bought 3 bed new build on land surrounded by council estates, that isn't built yet and is 190k.

we put far more effort into choosing the type of place that we were after than anything else to be honest. We've been abroad for a few years and returned to find the UK housing market isn't the piggy bank for any chancer with a few quid to spend than it was in 2000...