We have to move out soon and don't know whether to buy or not

pamaris

I think we have to buy this year... help us figure out what to do.

Sorry, this will probably we long...

Our situation is that we moved back over to the UK from the USA 12 months ago. We have been living with OH's mum- It was originally supposed to be temporary but once we figured out how much we needed to save for a deposit, our timeline got longer and longer. It has gotten to the point that we are driving her absolutely crazy (especially me- the daughter in law ugh). We have managed to save £12k this year on a 30k salary (which has just been increased to 32k; with another rise expected in June). Even with 12k we are about 20k short, considering fees, stamp duty and furniture. (As a side note, whatever we do I am going to make sure we have a decent emergency fund- about 3k in cash and 4k in investments).

The max mortgage we could afford if we absolutely stretched ourselves is 4x- so about 128k (yes, I know that this would not be a comfortable arrangement). OH's mum wants to take 20k of equity out of her house to help us get on the ladder. We had a big family discussion this evening; got the spiel from bro & sis in law about how prices aren't coming down; we need to get on the ladder, etc. etc. They've made so much money on their house and they're even going to buy another one blah blah blah.

I know good and well that while we are supposedly entering a buyer's market, it probably is not the best time to buy and we'd get a better deal in 18-24 months. However, this 20k for our deposit is a one time thing; it's now or never.

If we banked our 12k and moved out now; and waited 18 months for lower prices... well that 12k will only have increased by the amount of interest paid on it. What I mean is, on 32k we wouldn't have a whole lot leftover each month after paying the rent, which would be about 650 a month.

Houses we actually like are listed for about 165-170k around here. This would get us a house we could stay in for 10+ years. To get this to an affordable figure for us, we need someone to accept an offer of 152k or less. We would then have about 24k to put down as a deposit.

Alternatively, we could buy a 2BR which would be cheaper but we would definitely have to move out of in 4-5 years, as our daughter is 6 and our son is 3; and they can't share a room forever. The 2BR's are listed at about 150 but I reckon we could get one for 140, making our mortgage about 116k.... much easier to deal with as far as the payment goes.

Ideally, I would like to take the 20k, move out and take our time finding a house, but it has been stipulated that we can't have it both ways. If we don't take the money, well honestly we don't have enough of a surplus income at the end of the month to save more than about 200 a month if we were renting for 650.

I just don't know what to do. Buying a house with a 128k mortgage will cost about 760 a month on the absolute best rate available. Renting the same house would cost about 650 a month. Seeing that any extra would have to go towards our deposit, it doesn't seem like we'd be that much better off. Plus prices would need to fall 15% or so to make up for that 20k free money Mum wants to give us.

What would you do with if these numbers applied to your life? For what it's worth, we have no debt and I am relatively frugal.

Also, would it be better to buy a desirable 2BR that we know we will have to move out of in 4-5 years, or to buy a less desirable 3BR? (Everyone says get a bargain and "do it up"... the trouble is, there are no real bargains, and in any case we won't have enough money leftover to "do it up".)

Another question, what price range should we look in if we know we will be coming in with "cheeky offers". (i.e. would it be reasonable to look at 170k houses that have been on the market for awhile knowing that 152k is the highest we can possibly go)

In a nutshell, our options are:
A) Rent for 650 a month; with 150-200 leftover each month for adding to our 12k deposit. Buy in 2-3 years when (hopefully) the market drops.
Buy a halfway decent 3BR for 152k; mortgage of 128k; payment of 760 per month
C) Buy a nice 2BR for 142k; payment about 700 per month. Move in 4 years to a 3 BR.

I just don't know what to do. We will probably have to decide within a month or two. I am really fed up with all of this. (

(FYI I am looking for ways to boost our income but that is another topic; these are the numbers currently in front of us).

maryotuam

I know very little about house buying but if I was in your shoes I would accept MIL's offer and opt for a two bedroomed in a good area. Maybe go for a house where the seller is realistic and already prepared to take a drop in the asking price. The quality of life benefits of being in your own home soon is worth taking into account.

But as I said before I'm no expert.

kj*daisy

I'd do B or C, maybe looking for a 2 bed with a big room you could divide into 2 small rooms for the children when they are older if you struggle to move again in due course.

I expect people will say prices will fall, but if you are going to lose out on £20K by not buying now - I'd take the money and hope for prices to stay level in the long run.

3dsmills

Hi,

We're in a similar position to you and have come to the conclusion that we need to buy, if we wait another year we'll have spent 8k in rent, if we buy we'll at least be paying capital on our house. If prices drop, and they probably will at some point then ride it out until they go up again.

With regard to offers I think you might get lucky with a cheeky offer of 152k on a 170k property if it's been on for a while but from our experience those properties usually need a bit more work. Just don't set your heart on a place.

Good luck with your house hunt!

pinkshoes

pamaris wrote: »

The max mortgage we could afford if we absolutely stretched ourselves is 4x- so about 128k

I know good and well that while we are supposedly entering a buyer's market, it probably is not the best time to buy and we'd get a better deal in 18-24 months. However, this 20k for our deposit is a one time thing; it's now or never.

Not all areas are falling in price, so this really depends on where you live. Some areas will probably remain stagnant for 12 months then rise at a more realistic rate, whereas other areas will continue to rise (although more slowly than in previous years!). It would be foolish to ASSUME than in 18 - 24 months you'll get a better deal.

With the credit crunch, don't assume you'll be offered 4x your salary. Some banks will perhaps only offer 3x, so you'll need to go speak to perhaps a mortgage advisor and see.

I'd go for a 2 bed house in a desirable location. Location is perhaps THE most important factor... and a 2 bed is even adequate for those with 2 very young children. I wouldn't get a 1 bed though! Very limited market for them.

carolt

If it was me - and to some extent it is, although I don't have the extra 20K to factor in - if I couldn't afford a proper family home in an area with good schools, that I knew I could stay in long term if prices fell, I'd take the gamble and rent rather than buy in the current market. If you can negotiate a price on a house you like long term, and are sure you're not going to have any more kids and have pretty secure jobs, take long term fixed rate and go for it - presumably your salaries will continue to increase over time making the stretch more affordable.

But I absolutely would not risk buying now for anything other than a house with long-term potential now. There's too great a likelihood of prices falling and you getting trapped in it as well as losing all your - and your MIL's - hard-earned deposit money. If it's cheaper anyway to rent an equivalent property, what's the hurry to buy?

barnaby-bear

carolt wrote: »

If it was me - and to some extent it is, although I don't have the extra 20K to factor in - if I couldn't afford a proper family home in an area with good schools, that I knew I could stay in long term if prices fell, I'd take the gamble and rent rather than buy in the current market. If you can negotiate a price on a house you like long term, and are sure you're not going to have any more kids and have pretty secure jobs, take long term fixed rate and go for it - presumably your salaries will continue to increase over time making the stretch more affordable.

But I absolutely would not risk buying now for anything other than a house with long-term potential now. There's too great a likelihood of prices falling and you getting trapped in it as well as losing all your - and your MIL's - hard-earned deposit money. If it's cheaper anyway to rent an equivalent property, what's the hurry to buy?

Problem with renting in this country is you generally won't know if you can stay long term or if rents will rise. Most BTLers mortgage companies will allow 12 months AST max (usually 6). Particuarly with kids moving every 6 months - the costs, finding rentals that allow kids, the damage deposits lost because they've touched the walls, not being allowed to decorate their rooms, let them have pets, changing schools, struggling at 2 months notice to find the next rental in same catchment area or transport etc introduce uncertainty. With a credit crunch I suspect rentals will be rocky as recent muppet BTLers may have financial issues and try to sell if market falls and decent rentals may be scarcer.... A rental won't be a home in the same way as buying but on £32k a mortgage of £750 while supporting a family sounds tight (I think OP been a bit optimistic on the costs of ownership).

carolt

Agreed, there are risks of renting - but they have to be offset against risks of home ownership. If it's a choice between potentially getting stuck in a small 2 bed place for years while your kids grow up, unable to move and losing money hand over fist - or possibly getting moved on whilst renting (which the OP is only talking about doing for 12-18 months anyway, not years) it seems a clear choice to me that renting is the safer option.

I think few renters - myself included - would argue that long-term renting, in this country at least, with the insecurity of AST's, is ideal, but then, for FTB's like the OP and myself, nor is buying at current prices.

bigjoe

3dsmills wrote: »

if we wait another year we'll have spent 8k in rent . . .

So if you buy you don't pay rent but over the same year - as in the next 12 months - chances are you will lose more than that if prices fall by just 5%!!! And that doesn't account for any money you spend maintaining your new house.

Wait a year and then buy and you may well be quids in. Nobody's suggesting renting forever, but to buy just when the market is falling and thje economy is turning - I can't think of a worse time!!!

bigjoe

pinkshoes wrote: »

Some areas will probably remain stagnant for 12 months then rise at a more realistic rate, whereas other areas will continue to rise (although more slowly than in previous years!) . . .

With the credit crunch, don't assume you'll be offered 4x your salary. Some banks will perhaps only offer 3x, so you'll need to go speak to perhaps a mortgage advisor and see.

So prices will rise even if it is at a "more realistic rate", but nobody will be able to borrow 4x their salary let alone the 6-10x their salary they were being offered pre-credit crunch.

So please tell us all where the money is going to come from for people to buy the houses????

pamaris

Going back and forth on this one... I am leaning towards trying to get a good deal on a 2 BR... We would be on a much more comfortable income multiple then. For example if we get one for 140k, then put down 24k as a deposit, then it would be £622 a month... by the time we would need to move (4-5 years), we would owe about 108k. Basically that means that as long as prices do not drop more than 23% in 4-5 years time then we won't be trapped. I tend to think that some of the house price falls will not be nominal but will be inflationary. I guess everyone has to set a level that they think houses will not drop below and buy accordingly.

I guess I am thinking that the free 20k from Mum is our house price crash. Combine that with finding a motivated seller and maybe we'll be allright. Even though the prices are higher than I would like there are lots of properties on the market round here, and quite a few that have been on for 6+ months.

The "rush" to buy a house is simply that we have moved 5 times in 5 years and I want to stay put for a few years. Stability is very important to me at this point.

Keep the comments coming though; I am listening.