Housing market continues to slow....

meanmachine_2

OK, fair enough, I accept all of those points.

But sentiment is crucial in this market.

And as a potential FTBer, I think the only market condition that would get me off my lazy !!!!!! and seriously consider buying is if the market started to rise again.

That would make me a motivated buyer.

In a falling or stagnant market suddenly I lose my motivation. I'm happy to continue saving for a deposit rather than buying.

Now I might be strange, but if I think that then surely most FTBers think the same. If I see a market going nowhere, suddenly I start to realise that property is very expensive. Without the threat of them going even higher, and without the sweetner that I might make capital gains, tell me what my motive is for buying? I have none.

Unless we're really heading for a plateau, followed by 10% gains in a couple of years, I don't really know why a FTBer should stretch themselves to buy.

But I'm here to be convinced otherwise.

And with BTLers gone from the market (new ones anyway), who keeps the market afloat?

Hunnymonster

I must be really daft in all this.... I bought my first house because I needed somewhere to live, and it made no sense to me (and still makes no sense to me) to pay rent and have effectively nothing to show for it at the end.

When we moved house, none of the criteria for moving was fiscally motivated - it was purely to move to a place that we wanted to be in - after all any gains (or losses) that are made in the property price are purely on paper (and speculative until actually realised) - meanwhile, I've got a place to live that is an asset that is appreciating in the long term, and it's cheaper to pay the mortgage than the rent.

Sput2001

Without the threat of them going even higher, and without the sweetner that I might make capital gains, tell me what my motive is for buying? I have none.

Because, as has already been stated elsewhere, if you're in it for the longer term there are more benefits to buying a house than just watching its value increase. Take out your standard mortgage and it'll be paid off in 25 years as long as you're sensible, and if you're really smart (and overpay into a flexible mortgage, for example) it could be a fair bit less than that. Then it's yours.

Try going to your landlords in 25 years time and telling him you're not paying them any more, and that the house you've been renting isn't their valuable asset any more, it's yours.

meanmachine_2

But that doesn't answer my question: what's my motive for buying now, when in real terms the property will be cheaper in 7 years time (if I believe rightmove)?

Add to that the fact that renting is MUCH cheaper for me right now (about £200 p/m, not including buying costs, furniture, insurance blah blah).

So I save £2400 a year, times that by seven = £16800, plus interest from by deposit, which is another £5,000 say.

So I save £20K (£40K if you include interest) and my income multiplier will be back to x3.5 in 7 years' time.

No me it's a no brainer. That's if rightmove's prediction is correct.

meanmachine_2

NickMidgley wrote:

Try going to your landlords in 25 years time and telling him you're not paying them any more, and that the house you've been renting isn't their valuable asset any more, it's yours.

Try going to a bank that you've been borrowing from and tell them that the property you've been servicing an I/O mortgage on is now yours.

In this low inflation economy, a £200K home is still likely to be a huge sum in 25 years time.

Pheno

Hunnymonster wrote:

I must be really daft in all this.... I bought my first house because I needed somewhere to live, and it made no sense to me (and still makes no sense to me) to pay rent and have effectively nothing to show for it at the end.

Your intuition is not necessarily correct - it all depends on the maths.

Have you ever calculated the total interest payments on your morgage over 25 years? It's huge. This is money "down the drain" in exactly the same way rent money is.

Currently with house prices so high, and rental yields so low, renting can, in many cases, be cheaper than buying even in the long term.

meanmachine_2

Quite right Pheno.

I'm not saying some of the lovely people on this site are thick - most seem much more clued up than me - but the level of economic ignorance at large is quite shocking.

A have a friend - she borrowed 7 times her salary (interest only), and sunk £40K of equity into her purchase.

She thinks it's cheaper doing this than renting. I didn't want to point out "opportunity costs" relating to her equity, risks of a falling asset value etc.

Oh, and she now thinks she's "bought" her flat. Nope. She's merely renting it off her lender.

Still, she'll be OK. Her salary is sure to rise in the coming years. But she's one of these people whose outgoings rise to meet her incomings, so she'll never actually start paying off her mortgage, ever.

Sput2001

Add to that the fact that renting is MUCH cheaper for me right now (about £200 p/m, not including buying costs, furniture, insurance blah blah).

If your rent is £200 per month then chances are you're either: a) very lucky or b) living in circumstances that many would find unendurable, especially if you've got a family. Under these circumstances, not buying makes a whole load of sense as you'll probably have an above-average disposable income which you can use to save up with or invest elsewhere. Your situation is one that very few others share, though.

Try going to a bank that you've been borrowing from and tell them that the property you've been servicing an I/O mortgage on is now yours.

Then don't get an Interest Only mortgage! (You'll remember I did refer to standard and flexible mortgages). Taking out an I/O mortgage without having some kind of provision in place to pay off the capital at the end of it (e.g. other financial investments or a very rich auntie) just doesn't make sense - especially at the moment.

meanmachine_2

No, my rent isn't £200 pcm, it's £200 cheaper than if I were to buy the equivalent.

And yes, of course I personally wouldn't take out an I/O loan, but you have to compare like with like.

And I read somewhere than 60% of all new FTBers were opting for IO loans, presumably stretching their finances even by doing this.

Doesn't bode well for the future, does it?

Sput2001

OK, let's say you're 30 years old now, will live until you're 80 and want to live in a two-bedroomed flat.

A quick check on rightmove says that you can buy one for £150,000, or rent an equivalent property in the same area for £750 pcm. Taking a standard 5.75% repayment mortgage over 25 years, the monthy repayments are £943. Renting might seem like the cheaper option, but question is: how much are you going to pay over the rest of your lifetime?

If buying: £943 x 12 x 25 years = £282,900, AND you're the owner of a two-bedroomed flat, whatever that may be worth in 25 years' time.

If renting: £750 x 12 x 50 years = £450,000, and the flat still belongs to someone else. EDIT: And if you factor in an annual rent rise of 3%, the grand total spent is £1,045,627.