does buying at the top or bottom of a market really matter?

lethal0r

are there any facts & figures showing how well people do when they buy at the bottom of a market compared to the top?

those who bought in the nineties crash are they mostly mortgage free now? do they have more money in the bank? are they better off than those who bought years earlier but at the peak?

it seems obvious that to buy at the bottom is better, just wondering if it can be proved with a few numbers.

IveSeenTheLight

Essentially, the answer to your question is that it is best to buy the property as cheaply as you can.
In a falling market, then it would seem obvious to wait as you could buy the property cheaper, there are other factors to consider as well (how much competition there is when the prices are low, availability of mortgages, new mortgage interest rates etc).
Buying at the top would also potentially put you into negative equity, essentially you owe more on the mortgage than what the property is worth. This is not a problem unless you sell or remortgage the property, as long as you can afford you could see through the negative equity. You can still move properties while in negative equity as some lendors allow you to transfer you mortgage onto another property, but best to check this out.

If you take 1990 as an example as roughly the top of the last cycle.
Anyone who bought then and still has the property will certainly have the property worth more now than it was back then, even though prices dropped and as you say may be close to being mortgage free.

Essentially affordability is the key. If you can afford the mortgage after the initial discount period and you go on to SVR and consider interest rates going up then there is no real issue with house prices droppping in the short term(other than smarting that you could have paid less)

Some people try to call the top and bottom of the markets via STR (sell To Rent). This is ok as long as your personal life can go with renting and renting is cheaper than the mortgage interest. These people however are speculating and for some the figures may work, for others it may not.

baileysbattlebus

We bought a house in 1988 just before the "peak", bought for £80k sold it at the the bottom of the market in about 1994 for £80k, but we had put a £20k deposit down, so still had that. Prices for our type of house peaked at £136k (we had friends who bought then on virtually a 100% mortgage)

We bought our current house for £93.5k, vendors told us the price peaked at about £160k. So it went down a bit more than the house we sold, but it did quite a bit of work doing to it.

We still have a mortgage, unlike some, we have never seen paying the mortgage off as a priority, we used our spare cash on the kids, cars, holidays, nice christmases, hobbies etc. We have savings, we also have debts, a car loan and a couple of credit cards.

Our friends who bought at the peak still live in their house, they have never needed to move, it's a 3 bed detached and they have one child. If they sold it today I imagine they would get about £290k. Although they were in negative equity big time for a few years they could afford to pay their mortgage.

It would be difficult to say if people who bought at the bottom of the market are better off than those who bought at the peak, there are so many

variables to consider. Salary is a big one, lifestyle another, how big a deposit was put down.

IveSeenTheLight is right, affordability is the key, don't overstretch yourself, interest rates can go up as well as down.

When we bought our first house in 1983 interest rates were 12% and at one point during the early 90's for a few months they were about 15% and we saw our mortgage payment go from about £400 pm to £700, it was enough to cripple anyone. And building societies were pretty quick to put the rates up but not so quick to bring them down.

In the last crash not all areas saw huge price drops, we live in the south east, which did, my sisters live in the north east which didn't.

And don't forget people who bought in the 1990's, or like us in the 80's have had a property a long time and are not new starters in either property or careers and are probably earning quite good salaries, possibly at the peak of their earning potential, and are likely to be in their 40's or 50's.

In 20 or 30 years time a new generation of buyers will be blaming the new buyers of today for high house prices and the fact they can't afford to buy the house they want, avidly waiting for a crash!!

PasturesNew

Whether it matters depends on your position in the life cycle at the different parts of the housing cycle.

And if you intend to move. And affordability.

If you buy the perfect house at any point of the cycle, love the house/never want to leave, can continue to afford it all the time, are under 30, then things are peachy.

If you buy an 'OK for the next 2 years' house in your late 40s and are really stretching yourself, then lose your job, you've probably scr3wed yourself royally for the rest of your life.

To put some figures to it, take now. Take a figure of £250k right now for the above scenarios:

a] House will drop to £150k and back up to £250k by the time you're still under 40. During this time you're at your peak of earnings capability. If you love the house and can afford it, there's no pain.

b] House will drop to £150k, you'll sense the passing of time as it drops and gains again and you're approaching retirement with no feeling of being in a comfortable position for your old age. Little feeling (with £100k negative equity at one point) that your future is assured. During this time getting and keeping work may be harder - certainly if you lose your job it will be harder to find another. You risk repossession, if this occurs at the bottom of the cycle you've lost your entire life's "savings" of any equity you have.

Using the figures above again, you buy a house at £250k in 2008 on a standard 25-year repayment mortgage at 6% by 2018:

a] By 2018 you will have paid £1610.75/month for 10 years and still owe £190,879. From 2018 to 2033 you will have to keep paying £1610 on that mortgage to pay it off.

b] By 2018, you will have paid then £966.45/month for 5 years and still owe £134,898. From 2018 to 2038 you will continue to pay £966.45/month to pay it off (extra 5 years as you started it 5 years later)

Over the lifetime of these two mortgages, you will have paid out:
a] Total payments £488,226.
b] Total payments of £289,935.

So every pound you get a house cheaper, over the life of a standard 25 year repayment mortgage, will mean you pay back £2 less.

neverdespairgirl

My parents bought their main house in SE London for £495k in 1993, which was pretty near the bottom of the market. They have now paid off that mortgage, and the house is worth ITRO £2.5 million.

abaxas

I cant beleive people are saying it's ok to buy at the 'top'.

Just as yourself the following questions.

1) Do I buy a 3 bed semi or a 3 bed detatched?
2) Do I buy a 2 bet flat or a 3 bet flat?
3) Should I buy a similar house in a better area?

Obviously most people want a smaller more expensive home in a worse area.

dubsey

We bought our first house in 1994 for £36k, two bed end of terrace ex-LA but with a side plot that you could (and others did) build another house on. Our mortgage was £220 a month. We have moved three more times, still have a mortgage but a much larger detached house and our repayments are £650 a month. There is no way we could have afforded this house if we hadn't carried our equity over from previous sales.

We had a friend that bought a house in 1989 and his mortgage interest was fixed at something mad like 14% for about five years. When rates dropped he was stuck, but took extra work and got through it. His house was the smallest style in the best area and when he sold it in 2001 it more than paid off his mortgage. He now lives in a massive new build near us, still has a mortgage and credit cards.

If we were either FTB or STR I wouldn't be buying just yet. My propertybee for this area is showing significant drops every day (today one change from £380-£340k). We bought near the bottom, prices still dropped the year after we bought and then started to rise and it has definately put us in a better posistion than if we had bought 5-6 years earlier.

setmefree2

PasturesNew wrote: »

Over the lifetime of these two mortgages, you will have paid out:
a] Total payments £488,226.
b] Total payments of £289,935.

So every pound you get a house cheaper, over the life of a standard 25 year repayment mortgage, will mean you pay back £2 less.

Pastures new you don't seem to have factored in the cost of rent. When you weren't paying for your mortgage you were paying rent. I think this is why over a 20 year period the dips and falls in the housing market have less of an impact. It's not a choice between paying a mortgage versus paying nothing. It's pay a mortgage versus pay rent. The only way you can gain financially is if you are paying (significantly) less to rent than you would on your own place. We all have to live somewhere in the end.

lethal0r

thanks all. are there any national figures or large scale surveys on this topic?

Turnbull2000

Affordability isn't the key. The ability to repay the mortgage in full whilst leading a life is.

Would a mortgage stretched over 40 years on an initial interest only basis count as affordable too, so long as the borrow can maintain repayments? 'Affordability' measurements are a scam and should be exposed as such.

setmefree2

abaxas wrote: »

I cant beleive people are saying it's ok to buy at the 'top'.

The op didn't ask this question. They asked if over the last 20 years it made any difference today whether you bought at top or bottom of the market.;)