FTB's - don't buy now!

Scabs

Having been a frequent visitor to MSE forums for some time I have finally decided to post.
This is mainly due to the fact that many people on these forums choose to ignore rational reasons why house prices are currently falling and will continue to fall.
All I can advise is for FTB's to do their own homework on the credit crunch and will hopefully realise the state of the current situation.
This is a money saving website so please dont just listen to "houses only ever go up" brigade as myself and many believe prices WILL continue to fall and you too can save money in time.

JimmyTheWig

Skyhigh wrote: »

I'm a FTB.

I'm due to complete on a house in about two weeks.

Renting in my area is the same cost (and sometimes more) as a mortgage, most of the time you're paying someone elses mortgage (buy to let).

Rent at £600-700 per month (semi detached!).

Or buy with a mortgage at £750 pm.

Rent for three years = £27,000


So, either I buy now and get my own house, or rent and throw money away for 3 years - wasting £27k.
In this light, in 3 years time the house prices would have to drop by MORE than £27k in order for me to have "saved" money.

The house I'm buying is £150k, so it would have to fall to £123k.

A couple of things wrong with this.
Firstly £27,000 is £750 a month. If rents are £600-£700 a month then over 3 years this is more like £23,400 (£650 a month).

Secondly, and more relevantly, you are ignoring how much interest you will be paying in that time if you get a mortgage.
Impossible to do without more figures, but quite possibly £600 of those £750 mortgage payments will be interest. Money spent on interest is just as wasted as money spent on rent. And so money wasted on your mortgage interest in three years is £21,600 (£600 a month).

Difference between money wasted on rent and money wasted on interest is £1,800.
So if the value of the house goes down more than £1,800 (just over 1%) then you'd have been better off financially waiting.


But I still don't say buying now is a bad thing.
AS LONG AS you can
* afford the repayments
* believe that you will be able to afford the repayments over the next 5+ years (regardless of what interest rates do, so i would suggest getting a fixed rate)
* are happy to live there for 5+ years

If you satisfy the above then you can ride out a slump in prices and you're fine.

JimmyTheWig

hotrod21 wrote: »

Oh no! What do I do? I bought my flat in May 2007 as a first time buyer... Oh well, suppose I'll just sit and wait for the crash. What else can I do? (ANy suggestions would be greatly appreciated)

Try to cut back on what you spend. This site is great for helping you to pay less for stuff.
Use the money you save to make overpayments against your mortgage (if you're allowed with no penalty) or stick into a savings account until needed.

You may or may not have bought at the wrong time. Only time will tell if that is the case. But that is done and dusted, now, and you can't "take it back".
The only real problem with falling house prices is the possibility of negative equity (where you owe more on your mortgage than your home is worth), which you want to avoid.
The best way to avoid this is to reduce your mortgage by paying more money into it.

MrSafeGaz

HammersFan wrote: »

If as a FTB I had a decent deposit, and got a reduction of, say 10% when I went to buy, then I don;t see the reason not to go ahead. It will take a good while to see falls of 10% if they occur.

You need zero experience to figure out that this is fairly poor advice to FTB's who don't need to buy a house right now. I think it's a fairly safe bet to assume that house prices aren't going to rocket up in the near future.

Making that assumption and also that you hold out from buying for 12 months, there are now three broad scenarios: -

• The price of housing decreases by either a small or large amount and you have a bigger deposit therefore you win.
• The price of housing stays the same and you have a bigger deposit therefore you win.
• The price of housing rises slightly but you have a bigger deposit. Assuming you have saved a fair bit each month the increase in deposit could well cover the house price rises. Plus it was worth holding back and taking the gamble to see if the prices would have fallen. You maybe don't 'win' here but you certainly don't lose.

The only scenario where this would fail is if house prices shot up again. I think that is unlikely. If those that also think this is unlikely still think it's a good idea for FTB's to buy then that's pretty poor logic and I would encourage people to take these posts with a pinch of salt.

JimmyTheWig

MrSafeGaz wrote: »

there are now three broad scenarios: -

• The price of housing decreases by either a small or large amount and you have a bigger deposit therefore you win.
• The price of housing stays the same and you have a bigger deposit therefore you win.
• The price of housing rises slightly but you have a bigger deposit. Assuming you have saved a fair bit each month the increase in deposit could well cover the house price rises. Plus it was worth holding back and taking the gamble to see if the prices would have fallen. You maybe don't 'win' here but you certainly don't lose.

This is assuming that they will be able save money for an increased deposit in this 12 months. Is there really that much difference per month at the moment between renting and buying?

mr.broderick

!!!!!!? wrote: »

That's great but you are very much the exception to the rule. You live in the cheapest area of the UK and around your parts renting and buying work out roughly similar. Also, because the place is at rock bottom price levels it has less far to fall.

What's about to happen is that the rest of the UK falls back more to the norm, which you are very close to aleady.

Having said that, I would still wait for price falls as every pound borrowed equals more than two pounds repaid over the period of a typical mortgage. Getting the place 10k cheaper could save you 25k in the long run.

Everyone that has evidence contrary to your beliefs !!!!!! are exceptions to rules...very interesting..you should have been a politician.
Just keep posting your beliefs and they will eventually come true, there is nothing worse than having made a bad decision just like you did but continual posts on here will not remedy that sir.

Skyhigh

Money "wasted" on mortgage interest is better than money wasted on rent - because:

You own the house (or the bank does) meaning you can do what you like with it (i.e. decoration), unlike many rented places.

You already have a mortgage - its going to be increasingly hard to get one in the short future (and even now).


To be frank, an extra £1,800 over three years isn't a huge amount compared to the realisation of owning your own property, and if you're worrying so much about so little then you probably shouldn't be buying a house anyhow.

As I said, it all runs back to what you can afford to pay and what you can afford to 'loose'. We're on a fairly cheap fixed rate for three years to help protect us against any base rate variations in the next few years - especially if there is a recession or similar, plus to help us get on our feet.

Holding off to get a better deposit is the best idea, as any loan costs money due to interest, but some of us just can't wait due to circumstance, i.e. we need to move out *now*. - Plus we already have a 10%+ deposit as FTB's

As I've said, we're in an exceptional position, one of the cheapest area's in the country, I have a very well paid job for my age, we know the area very well, we already have a deposit and money for house items (beds, sofa's, fridge, etc, etc), we have some additional savings too.

JimmyTheWig

Skyhigh wrote: »

Money "wasted" on mortgage interest is better than money wasted on rent - because:

You own the house (or the bank does) meaning you can do what you like with it (i.e. decoration), unlike many rented places.

You already have a mortgage - its going to be increasingly hard to get one in the short future (and even now).


To be frank, an extra £1,800 over three years isn't a huge amount compared to the realisation of owning your own property, and if you're worrying so much about so little then you probably shouldn't be buying a house anyhow.

As I said, it all runs back to what you can afford to pay and what you can afford to 'loose'. We're on a fairly cheap fixed rate for three years to help protect us against any base rate variations in the next few years - especially if there is a recession or similar, plus to help us get on our feet.

Although this is a partial rebuttal to my comments above, I couldn't agree with you more.
You are buying a home, not an investment.
As long as you are happy living in that home for the next 5+ years then it just so happens that that home will also be an investment.
Good for you.

dannyboycey

JimmyTheWig wrote: »

You are buying a home, not an investment.

:rolleyes:

It's a shame the moderators can't add this phrase to their expletives list. I'm getting tired of hearing it 20 times a day.

9 times out of 10, it's another way of saying "I'm paying too much for my mortgage"


While we're at it... and I know this is really pedantic.... but why can so many people not grasp the difference between "lose" and "loose"? (sorry... I said I was being pedantic - but it is mildly irritating)

Skyhigh

dannyboycey wrote: »

:rolleyes:
While we're at it... and I know this is really pedantic.... but why can so many people not grasp the difference between "lose" and "loose"? (sorry... I said I was being pedantic - but it is mildly irritating)

OMG spling mstkes R az bd az txt spk, 0R 1337 5P34K!!11oneone!!!1111!!!

Yes it is pedantic, mind you, the line above is also very sarcastic.

It is true though, unless you're buying as an investment, you're really buying a home. Although its good and nice to make profit on a property, its not critical - what is critical is having a roof over your head and being happy ....and being able to actually afford it.
Mortgage = "death" (french) + "pledge"/"loan" (olde english) == deathpledge.