Advice on buying first property

polska1979

Hi guys

I'm at logger heads with the girlfriend about buying our first property. We are both 25.

I would appreciate it if you would take a bit of time to read through our situation and tell me if you thinkwe would be stupid to go ahead, please be brutally honest.

Ok, a few weeks ago a house next door but 2 was repossesed, we thought it was going to go on the market for approximately 55k as it was only a terraced. a house in the same street, when its done up nicely would fetch about 75 - 78k. Anyway, we arranged for a viewing but were told by the estate agents that the house was up for £69,950. The house would need about 10k worth of work doing to it, its that bad! (no bathroom or kitchen, theyve been smashed up by the last tennant). We knocked the idea of that house on the head, although I'm still considering putting in a cheeky bid of about 60k for it as i'm prepared to do the work.

Since then my girlfriend has found a couple of houses that are in the same town but dont look like they need too much, if any, work doing to them. They are up for approx 72k. But the most these houses will ever be worth is probably about 75k in the current climate(house prices seem to be stabilising in our town, if not falling due to lack of interest in the properties)

Below is a rough breakdown of our debts, salaries etc.

me
salary £18,500
loans outstanding - hp car loan - £3000 and cahoot loan - £3700

car is worth 4k at the moment and i need a half descent car for work, im in to the last year of my loan agreement with them and pay £250 per month.
I pay 100 per month off my cahoot loan

No overdrafts and no other bills that cant be scrapped when we move in.

the mrs
salary -£14000
loans outstanding - car loan £5000, credit card - £3000, odraft - £1000

Her car is worth about £2500 and she has recently paid off about 2 or 3k in other debts.

We have £3000 saved up between us.

Now, do you think it would be wise to go for a house at approx £71 - 72k and lump the car loans onto the mortgage , another 8k to have a mortgage at 80k? and then use the 3k we have saved up to furnish the house, pay fee's etc? or would we be better using that 3k to put down a deposit and borrow more on the mortgage to furnish?

Ive been told by a friend who is a mortgage advisor that we could get upto a 125% mortgage with northern rock.

I dont want to be in a position where we have a mortgage on the house more than the house is worth. espeicially as the housing boom seems to have calmed down somewhat. From what I can make out the housing market seems to be on somewhat of a knifeedge at the moment. but im no expert.

This is causing a great deal of arguments between us both, she is aching to move in together and wants to do it asap, whereas im a little cautious and realistic.......what do you guys think. any help would be appreciated

Pal

Are you suggesting that you get a mortgage for more than 100% of the property value? I doubt you would manage that. Seems to me you need a much bigger deposit before you can think about moving.

If you think the repossessed house would be worth about £55k, why not put in an offer at that level? Worst that can happen is rejection, and the building society might accept it for a quick sale. You never know!

I would also suggest renting for a while with your woman so you can roadtest her cooking and cleaning abilities.

drwibble

Okay you asked for a honest opinion (bear in mind it is just my opinion, it is up to you to make your own decision based on what you feel is right)

Okay to sum it up your figures

Total Income £32,500
Total Debts £15,700
Total Savings £3000

Wanting to take on more debts of £72,000

Me and my partner are around the same age as you,

Total Income £33,000
Total Debts £0
Total Savings £15,000 (all hard earned and saved)

We are potential first time buyers, however would not dream of buying a property in this current market. Property prices tend to go in cycles, at the moment we are at a high point in prices, they will come down over the next few years. In the mean time we are saving and renting. You get a lot more property renting than buying at the moment.


Here is an extract of a speech from mervyn king (the boss in charge of the bank of England)

The move from a regime of high inflation to one of price stability can have consequences which again are best illustrated by the housing market. A credible move to inflation targeting can bring down inflation expectations relatively quickly, even if with a lag. But a move to low inflation has other consequences that may be less easily understood. Price stability means lower nominal interest rates, and lower mortgage interest payments. It may also mean lower real interest rates if the inflation risk premium falls. But the fall in nominal rates is likely to be much larger than the fall in real rates. The lower mortgage payment largely reflects a rise in the effective duration of the loan because inflation no longer erodes the real value of the debt as quickly as before. In a low inflation world, nominal incomes rise more slowly than before and the real burden of servicing the debt persists. It may take longer for households to work out the impact of low inflation on real interest rates than to realise that the rate of increase of prices of everyday purchases has fallen. Learning takes time.
One possible consequence of a slow adjustment to low inflation is that households may mistake too much of the reduction in nominal interest rates for a permanent fall in the real rate. As a result, asset prices are bid up to levels that prove unsustainable when learning finally occurs – and at the LSE you know that in time we do learn. How far this theoretical argument applies to the British housing market at present is difficult to say, but it demonstrates the risks from current house price to earnings ratios that are close to the peaks reached in the late 1980s.



Putting it in other terms,
Our parent’s age had high inflation with high interest rates which quickly eroded mortgage debt. In our age we have low inflation with low interest rate which will not erode the mortgage debt.


Check out some of the predictions from leading economists on house prices in the coming few years.

http://www.housepricecrash.co.uk/index.php

http://www.firsttimebuyerhelp.co.uk/uploaded/file/ftbbeware.pdf


All this is pointing to avoid buying a property at all costs at the moment.
There are many of our generation priced out of property (I have heard 92% of FTB are priced out of most cities in the uk), so you are not alone.


Anyway, as I said at the start it is up to you to decide what is best for you and your partner but we are definitely not buying until the housing market corrects itself.

Squidgy

Don't do it!!!

What area do you live in though? I can't remember the last time I saw a house for that little!!!