A question for potential FTB's

Jazzking

I was waiting for a thread like this to pop up, since I'm a potential FTB, but everytime I read threads on here or the various scaremonhering sites saying house prices will 'crash' I have second thoughts...

My partner and I are currently renting a small flat, and have now both got jobs which allow us enough money to get a mortgage (just) so figured it would be the right thing to do rather than paying someone else's mortgage in rent. House prices round us (North West) are far lower than the national average, and some areas are "regeneration areas" such as Morecambe and Heysham and as I see it have quite a lot of potential for a 4 bed terrace (currently available at <£100k) to be worth a fair bit more than that in 5-10 years time.

It's been said before, you can't always think of a house as an investment, it has to be a 'home' as well, and if we're happy sticking it out for the next few years then I'm fairly sure (in this area at least) that over that period of time, the increase is going to be more than the current decrease we're seeing.

As for staying renting, it is an option but we really can't live here any more since it's too small for our needs, and to move to a bigger place in today's climate would result in rent of more than £500 which could be quite usefully used on a mortgage regardless of whether prices go up or down, it's still 2 years off our mortgage at the end of the day. We don't save, the deposit's coming from family savings which will be there for us whenever we decide to buy so in my eyes now's the right time to buy for us, and if house prices do fall then I'll just have to stick it out like other people who went through the crashes in the 70's and late 80s...

Interesting thread though, it'd be good to hear from more FTBs

~Alex~

liss90

We are first time buyers who have been renting for many years. I am 34 and my partner is 42. We have four children and pay rent of £900 and £166 in c/tax per mth.
We have had to move four times in five years and have been told that we will have to move again by December because our Landlords job contract runs out and he is returning to the u.k.
Everytime we have rented a house the agency has told us that it is a long term investment for the landlord and he would not be selling etc.
So even though we are worried about house prices, recession, interest rises etc, we are now buying. We are sick of living in someone elses space. The children cant even put posters on their walls and we live in fear of them staining a carpet.
Also as I said we are no longer spring chickens and it will start getting harder to get a mortgage.
We are moving out of London and have bought a house for £116,000. My partner will have to stay in London for a few days a week at my mothers for work but his company is reducing his week to four days but keeping him on same pay.
We are soooo sick of moving and have got to the stage where we just want our own home!

John_M_Business

FaTB wrote:

It seems to be fairly common knowledge now, that House prices are at best not going anywhere for the foreseeable future, and at worst may drop 25% - 30 %.

Er... yes. Why not start a discussion thread with an unbiased, level headed, considered statement...

Come again???!! 25-30% in your dreams.

bunking_off

I think there are two aspects that are always neglected in the rent versus buy debate.

The first is the emotional side of things. I rented for a while when I was younger and had no intentions of staying in the same place for too long. The one aspect I absolutely hated was that fundamentally the place wasn't mine....for the office-workers amongst us, it was a bit like borrowing someone's desk for the day. I couldn't get away from the fact that there were things about the flat I'd change, but why would I invest money for someone else to get the benefit? Also, yes, I didn't pay the maintenance on the place, but it meant I was at the mercy of when the landlord would actually act on any defects. Finally, there was the constant worry that when the 6 months rental agreement was over, you could be out on your ear. For me, what I had was a place to live rather than a home.

The second issue is less of one in the FTB market, but more relevant further up the chain. In the South East, there's a vibrant rental market and if you want to rent a nice 4 bed home, that's fine. In the North West, when I was "between houses", it was very difficult to find any rental properties above the terraced/3-bed semi segment. It's therefore simply not true to believe that rental and buying are substitutional in all aspects.

In purely financial terms, there is merit in keeping out of the market at the moment. However, setting up home is not a purely financial decision.

twogoodtwo

As a couple of people have mentioned on this thread, a home is much harder to look at as an investment as there are too many emotional ties with owning a home over over another investment vehicle (whether it be a Buy To Let house or shares etc.)

Therefore, whenever someone I speak does not know what to do, I ask them if they see themselves moving again to a more expensive house in the foreseeable future.

If the answer is "Yes", then buying your first house now is a great way to hedge you bets:

If the property market continues its ever-lasting rise, then you have not completely missed the boat and you are already on the ladder, getting some of the gains for yourself.

If house prices fall (and you would feel annoyed if you had just bought and your house falls in value) remember that you actually want house prices to fall if you see yourself moving up on the property ladder. I would be happy to take a 10% fall on my flat valued at, say, 200,000 (ie 20,000 loss) as long as the house I want valued at, say, 400,000 falls by 10% (ie 40,000). Meaning that the house of my dreams is 20,000 more affordable.

Yes, I could of waited and rented but then I would not be owning my home in the meantime and would be fully exposed to another rise in house prices.

Fairly simplistic I know, but always worth bearing in mind. Too many people, even who are on the house ladder want house prices to rise as they can see their house is worth a lot more. What they forget, it that the house they want next has usually gone up even more!

FaTB

John_M_Business wrote:

Er... yes. Why not start a discussion thread with an unbiased, level headed, considered statement...

Come again???!! 25-30% in your dreams.

I think that was a fairly balanced statement, many think the market will stagnate, and many are predicting larger drops than I suggested.

But I do not hear anybody saying that prices are rising or are going to start booming again !!

Wake up times have changed, the boom is well and truly OVER.

Pal

twogoodtwo wrote:

If house prices fall (and you would feel annoyed if you had just bought and your house falls in value) remember that you actually want house prices to fall if you see yourself moving up on the property ladder. I would be happy to take a 10% fall on my flat valued at, say, 200,000 (ie 20,000 loss) as long as the house I want valued at, say, 400,000 falls by 10% (ie 40,000). Meaning that the house of my dreams is 20,000 more affordable.

House prices do not rise and fall like that. The more likely scenario is that your house falls by £20000, and the £400000 house also falls by £20000, leaving you no better off.

In addition, if you have bought and ended up with, say, £10k negative equity, you are going to have major problems moving house and gettting the mortgage on the other property without a deposit to put down.

Personally I think that the only people who should buy at the moment are those with massive deposits who are not worried about losing it if house prices fall i.e. they are going to stay where they are for a long time.

kinesin_2

FaTB wrote:

I think that was a fairly balanced statement, many think the market will stagnate, and many are predicting larger drops than I suggested.

But I do not hear anybody saying that prices are rising or are going to start booming again !!

Wake up times have changed, the boom is well and truly OVER.

I think FaTB is right to choose the middle ground with a 20-25% drop, this will be over a period of time, maybe 2-4 years.

Even Estate Agents :eek: are predicting no recovery in revenue til 2008 with many job losses in the industry due to the slowing market/economy

twogoodtwo

Pal,

Can you possibly explain your rational why a more expensive house will fall less in percentage terms than a cheaper house. Experince in London has shown that it is often exactly the opposite. If you are talking about moving to different part of the country then that is a completely different argument.

Also, bear in mind that I said that it was a fairly simplistic argument. Obviously, people's circumstances will vary and you need to balance this into consideration when making any decision.

Finally, it has nothing to do with the length of time you stay in your house. a 30% drop is a 30% drop no matter if it is over 1 year or 5 years (and yes I understand the time value of money, DCF analysis etc). As long as you are moving up in the ladder (and have the deposit), I still maintain that as a buyer you want house prices to fall, not rise.

Ian_W

kinesin wrote: with prices dropping 9.1% this year and 10.3% till the end of 2006. You then still have 2 more years to go!! - and they are normally the last people to say prices might fall.

Read your own link again kinesin, I think you'll find it's refering to drops in EA turnovers, NOT prices.
"... who reckon that a revenue decline of 9.1 per cent this year will be followed by a further decline of 10.3 per cent in 2006."