Buying a house - Feeling petrified

92203

Hi there,

Currently in the process of buying a house. I have long thought that the housing market is over inflated, however have now concluded that irrespective of who gets elected, the government will do everything in it's power to keep prices going up ; supply side restrictions, 0.5% interest rates, Help to Buy, Funding for Lending, allowing people to withdraw their pension funds for investment etc.

I'm taking out a 25 year mortgage, fixed for 5 years @ 5.09%. We are putting down a 10 % deposit, and keeping the remainder of our savings as a rainy day fund in case anything should go wrong with either of our jobs. We will be overpaying the mortgage each month which will bring the total term down to about 16 years.

I feel worried about not buying a house and prices getting further and further out of reach, but at the same time am worried about buying at a time when interest rates have been at a record low for over 5 years and then getting stung when my fixed rate expires.

I would love to own my own house, but at the same time do not want to be in a position where I struggle to honor my debts and / or lose my home. If that were to be the case, I may aswell retain my mobility and continue to build my career.

When interest rates were at more normal rates back in the late 90s/early '00s, were typical mortgage rates significantly higher than the 5.09% I am going to be paying?

daveyjp

When interest rates were 'normal', 15 years from 1992, 1-3 percentage points above base was typical on fixed terms and better rates were available on trackers.

Banks have forgotten what 'normal' is.

the_flying_pig

I shoudl think you could get better than 5.odd percent, even with a five year fix/90% LTV.

System

You would be paying the same in rent anyway each month

But at the end of the 16-25 years, you will actually OWN your house, it will all be worth it

Thrugelmir

92203 wrote: »

I have long thought that the housing market is over inflated, however have now concluded that irrespective of who gets elected, the government will do everything in it's power to keep prices going up ; supply side restrictions, 0.5% interest rates, Help to Buy, Funding for Lending, allowing people to withdraw their pension funds for investment etc.

The Government of the day will be more concerned with the £100 billion hole in the public finances, along with the potential impact on the banks if over indebted individuals started to default on their debts. While there may be a recovery it's foundations are far from solid. There's no mileage in ever increasing house prices while average wages continue to fall behind inflation either. It's only the British obsession that continues to drive the market upwards.

AlexMac

92203 wrote: »

I...have now concluded that irrespective of who gets elected, the government will do everything in it's power to keep prices going up ; supply side restrictions, 0.5% interest rates, Help to Buy, Funding for Lending, allowing people to withdraw their pension funds for investment etc.... I feel worried about ...buying at a time when interest rates have been at a record low for over 5 years and then getting stung when my fixed rate expires. ...

When interest rates were at more normal rates back in the late 90s/early '00s, were typical mortgage rates significantly higher than the 5.09% I am going to be paying?

To respond to the last Q 1st,

The Bank rate hovered between 5-7% through most of the '90s, and I was paying a couple of points over that, luckily re-mortgaging in the late 90's to a tracker based on Bank Rate plus 0.75% (so while I started off paying 6 or 7% I'm now on an amazing 1.25%!

In other words, when the Bank Rate was around 5-6% lender were offering relatively more affordable deals, and I suggest that if rates climb, the market will readjust in terms of what's on offer.

But do you mind if I take an even longer perspective than the 90's? (after all, what is 'normal'?). The Bank rate was actually around 10-15% in the mid 70's when I first bought and 9-10% in the mid 80's when I bought again (touching an eye watering 17% briefly in late 1979!). http://www.bankofengland.co.uk/boeapps/iadb/repo.asp

But, bizarrely, Local and national Governments -of different political persuasions- were much more interventionist then. The only reason I could even afford to buy my 1st house (a £10k wreck) was the availability of a 100% mortgage on a 10% lifetime fix from the 'Greater London Council' regional government. And although Thatcher was abolishing the GLC because it was too 'red' for her by the time I bought my second place in the mid 80's, her government bribed me to buy that one through a 'Mortgage Interest Relief' tax break. This meant you paid no income tax on the interetst element of your repayments and in my case, added up to an £11k bribe on a £34k purchase over the 7 years I owned it. (That puts 'help to buy' into context, eh?).

IMHO rates will not go anything like that high again (and if they did, Mark Carney's head would be on a pole by the Tower) so I'd carry on if I was you. And while I don't believe your theory that Government has a secret policy of deliberately fuelling house price inflation, I'd bet money on continuing steady growth. Look at the Nationwide charts of house price inflation since 1975 and there's a steady upward trend despite the near 30% drop from late 1989 to the early '90s, and the 20% wobble in 2008. While past trends are just that, and not futurology, I'd be amazed if a purchase today went badly wrong. So jump on the bus (or bandwaggon) if you can; many can't.

AndyGuil

The higher rates have been typically coincided with high wage inflation too.

Thrugelmir

AlexMac wrote: »

In other words, when the Bank Rate was around 5-6% lender were offering relatively more affordable deals, and I suggest that if rates climb, the market will readjust in terms of what's on offer.

There's no longer PPI income to cross subsidise low mortgage rates.

If you adjust HBOS's accounts for PPI provisions subsequently made. You''l find that they never actually made a profit in the credit boom heydays. Going forward banks will be returning to a more average 2% - 2.5% above base rate.

w00519772

92203 wrote: »

Hi there,

Currently in the process of buying a house. I have long thought that the housing market is over inflated, however have now concluded that irrespective of who gets elected, the government will do everything in it's power to keep prices going up ; supply side restrictions, 0.5% interest rates, Help to Buy, Funding for Lending, allowing people to withdraw their pension funds for investment etc.

I'm taking out a 25 year mortgage, fixed for 5 years @ 5.09%. We are putting down a 10 % deposit, and keeping the remainder of our savings as a rainy day fund in case anything should go wrong with either of our jobs. We will be overpaying the mortgage each month which will bring the total term down to about 16 years.

I feel worried about not buying a house and prices getting further and further out of reach, but at the same time am worried about buying at a time when interest rates have been at a record low for over 5 years and then getting stung when my fixed rate expires.

I would love to own my own house, but at the same time do not want to be in a position where I struggle to honor my debts and / or lose my home. If that were to be the case, I may aswell retain my mobility and continue to build my career.

When interest rates were at more normal rates back in the late 90s/early '00s, were typical mortgage rates significantly higher than the 5.09% I am going to be paying?

I am in the same position as you. I have been ready to buy since 2007. I thought what goes up must come down so I was waiting for prices to fall. However, I do not believe this will happen now because of the following reasons:

1) Demand far outweighs supply
2) If house prices fell too much then surely it would result in financial ruin of many people and the government will not allow this.
3) The trend of house prices is always a general increase

Just think that you will be paying off your own mortgage instead of someone elses'.

I am also fixing for five years. Your circumstances may be different in five years e.g. higher salary. Good luck.

Blacklight

w00519772 wrote: »

Your circumstances may be different in five years e.g. higher salary. Good luck.

Exactly this. Your debt isn't going to increase but your earnings in relation to it will be a magnitude of scale greater in time.

Everyone's individual wage increases far quicker than inflation. The average wage seldom does!

carefullycautious

For inspiration see this blog

www.frugalqueen.co.uk