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

WTF?_2

setmefree2 wrote: »

Sorry I can't see where I was suggesting anybody should buy now I was merely saying that prices will recover and 10 years from now no-one will remember any of this.

It doesn't matter that eventually the house will be worth more - will you be living in it until then with no need to move house or no desire to trade up?

Because once you're in the negative equity zone, you are trapped and you'd better hope against all hope that your personal circumstances don't change and you find yourself with a sudden loss of income.


And assuming you want to move up the ladder at some stage in the future - as most do - and you are out of negative equity, you won't have nearly as much equity in the house for trading up as you would have had by buying at a more sensible part of the housing cycle.

Kez100

Yes, if you buy at the bottom of the market you can afford, for the same budget, a home on the next rung - or two, even.

We bought at the bottom for 75k a home originally worth, pre 1990's crash, 120k. We couldn't borrow enough for 120k, so would never have been able to buy here. Only now, looking back, we have saved on moving again - and that is a lot of dosh in todays market.

simcla

If you are selling a house to buy another one, is it not the current cost to change from your existing property to the new property that is the important thing? (Not whether the market overall is at the top or bottom of the cycle)

Kez100

It is so if you are moving up the ladder the lower the better!

m00m00

property price changes are measured in percentages

a 5% annual rise on a 200k property, is double the actual amount of money as a 5% annual rise one on a 100k property.

so in a boom such as we've had, it's the ones higher up the ladder than have moved up the most in terms of actual money.

borntobefree

boinging wrote: »

Of course prices will probably rise again,

Why do you think prices will rise again?

simcla

All house prices don't change at the percentage same rate though, terraced houses may show a bigger gain (or fall) than semi-detatched houses for example. Its all relative to what you can sell your house for and what you pay for your new house, not whether or not the market has gone up or down overall by a specific percentage for the market as a whole.

WTF?_2

simcla wrote: »

If you are selling a house to buy another one, is it not the current cost to change from your existing property to the new property that is the important thing? (Not whether the market overall is at the top or bottom of the cycle)

For most people (ie. those who have an outstanding mortgage on their old place) it's the equity in your current property compared to the cost of your next one that's going to really enable you to climb the ladder.

If you bought your old place at the peak of the cycle, your equity is likely to be considerably less than if you waited, saved and bought it during a lower point. That's bad, as you need to use the equity to make the next place more affordable.

Ideally you'd want to buy at the low point of a cycle, sell at the high point, rent for a year or two and buy back onto the ladder at a low point. That may not suit your lifestyle however.

Basically - always aim to buy low and sell high. Not exactly rocket science. At the very least, do all your buying and selling in the low point as you'll reduce the debt you take on. Whatever you do, avoid buying near the peak as it puts you into a greater debt, greatly increases the chances of negative equity and certainly makes it harder to accrue equity in your home.

simcla

!!!!!!?, buying and selling at the peak will not make any difference to the debt you are in as long as the sale and purchase cost differential is low, you could have a larger differential (and hence a larger debt) at the bottom of a cycle, discounting going down the route of STR and the risks that this presents.

WTF?_2

simcla wrote: »

!!!!!!?, buying and selling at the peak will not make any difference to the debt you are in as long as the sale and purchase cost differential is low, you could have a larger differential (and hence a larger debt) at the bottom of a cycle, discounting going down the route of STR and the risks that this presents.

OK, one last try to try to get this through.......

First, consider the words you yourself made:

"as long as the sale and purchase cost differential is low"

What it really boils down to is equity gain on the first purchase making your second purchase more affordable when you trade up. The idea is to reduce the amount of extra cash you need to borrow when you sell the first house to trade up to the second, more expensive house.

Consider this simplified example:

Compare what effect buying in year 2008 at 200k with a 180k mortgage (20k deposit already saved) versus:

buying 2 years later in year 2010 at 160k (predicted 20% house price fall) with a 130k mortgage (you manage to save another 10k for the deposit in those two years).

..... would have on the additional amount that you have to borrow when it comes to trade up to a 'better' (essentially, costlier) property at any given point in the future.


The only way it makes sense to pay more, sooner, is when you spend so much on rent waiting for prices to drop that it outstrips any potential gains. ie. You called the peak way too early and house prices keep rising for a long time afterwards whilst you wait. Tip: Falling house prices are a good sign that this will not be the case.


Second, if you still don't get it then go back and read post #29 by LittteMissAspie:

http://forums.moneysavingexpert.com/showpost.html?p=10803353&postcount=29

where things are costed out in detail.


If you still don't get it after all that then hey, it's your money.
I can only assume you have so much in the bank already that you are a cash buyer and don't give a flying fig about potentially overpaying so long as you get the house you want exactly when you want it. Lucky you.

I just hope that anyone who has to take on a mortgage to buy doesn't listen to your theories as they will end up borrowing more initially and more all the way along the line, costing them more in interest.