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Don't buy a house yet - bad advice?

Benjimoron Avatar
8y, 7m agoPosted 8 years, 7 months ago
http://uk.biz.yahoo.com/19042008/35/homebuyers-afford-patient.html


They say that you're better off waiting, but they don't take into account that waiting 5 years will likely add £75k onto the price of your house. ie buying in 5 years rather than now will cost you £75k.
Benjimoron Avatar
8y, 7m agoPosted 8 years, 7 months ago
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#1
agreed, and wages dont go up that much, the sooner you get on the housing ladder the better, even if its a small house/flat, property will never go down - have they ever, really. bought my firt house for 11,000, sold for 16,000 bought for 20,000 sold for 70,000 so put your money into bricks and mortar - the safest place
#2
I would wait 9-12 months to be honest. Also it really depends on where youre wanting to buy

HPI for March reflected something like a 2.8% decrease for the month. Picture was pretty gloomy across the board except for London where there was actually a 1.6% increase. Some regions saw a decrease of up to 5% in a month (e.g. Midlands). Numbers are off memory but pretty confident that those were the numbers

A lot happening behind the scenes with the BoE trying to stabilise the market by considering to accept certain mortgage backed securities as collateral in return for gilts but nothing definitive yet

The worse is not behind us....
#3
Buy a fixer-upper, that way you should add value to your investment.
#4
Program on TV showed flats in Manchester that were FS for £120K didn't even reach 70K reserve at auction.
Unless you down grading wait prices will fall
#5
why would it cost like 75k more, houses going down 20 to 30% in correction soon so a 200,000 going to cost 140,000 where is that 75k more in 5 years., its already started house's everywhere except places like london, will start to fall and continue to for years to come, at least next 3 years anyway.
banned#6
I agree, house prices can only go down (in the short term at least) in my opinion.

Around here prices are around the same as they were 6-12 months ago, but whereas last year they were getting snapped up within weeks, not I'm seeing them on the market for a few months.

Add to that the fact it is now much harder to get a mortgage, especially in the sub prime market, people will have to lower prices. To give an example of the mortgage situation, a couple of brokers I know say they could easily get 9/10 people who went to them mortgages, now they are lucky to get 1 in 10 through.
#7
Cant give any professional advice or anything like, all I can say is if it were me I would be waiting 12 months just to see how things are looking.

It is not so much the house prices I would be waiting for, as in to see how much they go up or down, but rather just seeing how world finance in general fares over the next 12 months as this is a rocky time and I dont think things will be better for another year or so.
#8
London is only rising because of the olympics apparantly, why would house prices go up for an event that's 4 years away and only lasts for a few weeks once it's on?
#9
Fair enough that at the moment you may be better off waiting and seeing what happens. But the point is that they don't take this into account, they say you'll be better off because you'll have a £30,000 deposit and that the house will have gone up by 8% a year on average. You'd obviously be better off buying now as in 5 years time you'd have paid off the £30,000 and you'd have bought your house for £75,000 cheaper therefore £75k better off!
#10
house prices will not drop in general, they wil level out but not a huge drop like the huge raise of the last 5-6 years so buying is as always the sooner the better.
#11
I think they will drop over the next 12 months. Have been keeping a close eye on the news as we haven't purchased a house here yet. We have a place abroad but have found it better to rent since returning to the UK 4 years ago. We spent several months looking here for a place 3 years ago but gave up after being gazumped and other problems resulted in 3 deals falling through. I mention this because we could pick up one of the houses we had an offer in 3 years ago for the same price today (the person who bought it on a buy-to-let mortguage has put it back on the market). In fact, although I have no interest in putting an offer in, I'm quite sure that we could get it for £5-10K less today than we were willing to pay then, and I believe this situation will continue to improve for potential buyers given the gloomy forecasts. At last it has become a buyers market again and a lot of the smart money thinks this trend will continue over the short term at least. Next time I put an offer in - if I do - I will probably be taking advantage of the growing practice of gazundering. I really do feel house buyers are in a position of strength at the moment, especially as more of the buy-to-let brigade are forced to let go of their investments over the next 6-12 months. Good thing too. Houses to the people!
#12
Sure a 150k house might drop by 5 or so but we are not going to see anything like a huge drop. n
#13
It all depends where you want to buy the house as in London its better to buy now whereas in the North of the Uk its probbaly better to wait a 1yr or 2 to see if theres any difference.
#14
kungfu
Sure a 150k house might drop by 5 or so but we are not going to see anything like a huge drop. n


manzi
It all depends where you want to buy the house as in London its better to buy now whereas in the North of the Uk its probbaly better to wait a 1yr or 2 to see if theres any difference.


either of you care to back up your claims with anything other than the claims themselves? and manzi, your broadbrush claim actually goes against the evidence as house prices in many parts of Scotland are bucking trends elswhere in the UK (incl. London) by continuing to rise.
#15
Money Spinning
London is only rising because of the olympics apparantly, why would house prices go up for an event that's 4 years away and only lasts for a few weeks once it's on?


Possibly for the buy-to-let market, people coming to the city to build the sports centres etc will be on highly inflated wages, thus meaning they will be able to afford highly inflated prices in the city for their digs, all makes perfect sence, the games are only on for a short period of time, but the construction work will be going on for a long time to come as yet.

Mike..
#16
Good post Colin. Sound advice Liddle ol Me. As to the London property market being driven by the olympics - thats rubbish. Scotland will soon be hit - lag effect just as there was a 4-6 month lag effect between the US and the UK.
banned#17
octobergirl;1928513
agreed, and wages dont go up that much, the sooner you get on the housing ladder the better, even if its a small house/flat, property will never go down - have they ever, really. bought my firt house for 11,000, sold for 16,000 bought for 20,000 sold for 70,000 so put your money into bricks and mortar - the safest place

Have they ever gone down?

Hmmm - yep. I bought my first flat in 87 for £43000 and sold it ten years later for £28000!

Mind you I bought a house in 97 for £57000 and sold it 6 years later for £180000

I still don't understand how you'll be 75K better off buying now than in 5 years time, when the market looks to be in decline.

Anyone want to buy my house :)
#18
csiman

I still don't understand how you'll be 75K better off buying now than in 5 years time, when the market looks to be in decline.

Anyone want to buy my house :)


Assuming the 8% increase they're using, like I said, at the moment it may be better to wait but if the 8% average is right like they say then the house will have risen £75k over 5 years so you'd be better off buying now.

I'll buy your house, it's better than mine!
#19
I would personaly wait, I am seeing house prices around here steadily falling.

TBH I don't think some of the houses justify the money that they are alledgedly worth, so this crash is well needed.
banned#20
Benjimoron;1936388
Assuming the 8% increase they're using, like I said, at the moment it may be better to wait but if the 8% average is right like they say then the house will have risen £75k over 5 years so you'd be better off buying now.

I'll buy your house, it's better than mine!

They are using a 25 year average to get 8%. Most people predict house prices will fall over the next 5 years so I would say this is the last time to be buying.

I'd sell up tomorrow if I could find a buyer who wasn't going to knock me down by 10% a few days before completion.

The only good news is that most people are going to sit tight and ride it out which is why I don't see the 30-40% fall some pessimists are predicting. That and also the wave of immigrants coming in that will need to be housed. Not to mention most housebuilders are cutting back massively on future projects.
#21
csiman
They are using a 25 year average to get 8%. Most people predict house prices will fall over the next 5 years so I would say this is the last time to be buying.

I'd sell up tomorrow if I could find a buyer who wasn't going to knock me down by 10% a few days before completion.

The only good news is that most people are going to sit tight and ride it out which is why I don't see the 30-40% fall some pessimists are predicting. That and also the wave of immigrants coming in that will need to be housed. Not to mention most housebuilders are cutting back massively on future projects.


I know they're using the average, if they'd said don't buy at the moment as prices could fall that would be fair enough. But they're saying don't buy for 5 years as you'll have a bigger deposit (they fail to take into account that the house would cost £75k more!) They claim that even with the house price going up £75k you'll be better off! You simply wouldn't, you'd have to pay £75k more than you would've!!!

Anyway, how much are you selling for? I'm not really going to buy, just interested. Where would you move to? Can't get much better than where you are.
#22
how can you be so sure that the house prices will go up 75k? if anything they will drop. kind of entering into a recession
#23
Benjimoron
I know they're using the average, if they'd said don't buy at the moment as prices could fall that would be fair enough. But they're saying don't buy for 5 years as you'll have a bigger deposit (they fail to take into account that the house would cost £75k more!) They claim that even with the house price going up £75k you'll be better off! You simply wouldn't, you'd have to pay £75k more than you would've!!!.


It's a little more complicated than that. Even if prices did rise that much over that period, you still have to factor in the cost of borrowing over that 5 years compared with the cost of renting etc. You also have to consider what you gain over the period in terms of savings interest and the amount you will need to borrow in 5 years time.
banned#24
I think the housing market in london will slow down but the prices wont fall that much. when they talk about "biggest fall since 1992" n all that stuff AFAIK they are talking about monthly growth. so the rate at which a house price grows each month has fallen, so it's still going up but not as fast. it would take something really major like all the buy to let people defaulting on thier second morgage for there to be a crash in london. i will wait for 12 months so i can build up more cash but its not going to be the disaster everyone is making it out to be.. (unfortunately for me and other buyers)
#25
Kitten13
how can you be so sure that the house prices will go up 75k? if anything they will drop. kind of entering into a recession


Like I've said, fair enough they may drop at the moment. But my point is that the writers of the article say that if the house price goes up £75k you'd be better off as by then you'd have a bigger deposit. You wouldn't as you'd have to pay an extra £75k for the house, the money you'd saved for a deposit could've been used to pay that amount off the mortage.

Quite simply, in the scenario in their article they are wrong as they don't take into account that you'd have to pay an extra £75k making you worse off!
#26
the people writing the article are probably idiots anyway
#27
Benjimoron
Quite simply, in the scenario in their article they are wrong as they don't take into account that you'd have to pay an extra £75k making you worse off!


but see my post above. You are looking at the issue in very simple price increase terms. There are other factors to consider, particularly cost of borrowing over the 5 years and c/f savings interest ratio
#28
Liddle ol' me
It's a little more complicated than that. Even if prices did rise that much over that period, you still have to factor in the cost of borrowing over that 5 years compared with the cost of renting etc. You also have to consider what you gain over the period in terms of savings interest and the amount you will need to borrow in 5 years time.


Interest only would be roughly the same as the rent.

The amount you gain in savings interest would be far outweighed by the rise in the house price.

The amount you'd need to borrow in 5 years time would be £75k more than if you bought now (ie the situation in 5 years time.)
#29
Liddle ol' me
but see my post above. You are looking at the issue in very simple price increase terms. There are other factors to consider, particularly cost of borrowing over the 5 years and c/f savings interest ratio


Cost of borrowing is roughly the same as rent, certainly not going to cost you £75k extra!!!

What's c/f?
banned#30
Benjimoron
Like I've said, fair enough they may drop at the moment. But my point is that the writers of the article say that if the house price goes up £75k you'd be better off as by then you'd have a bigger deposit. You wouldn't as you'd have to pay an extra £75k for the house, the money you'd saved for a deposit could've been used to pay that amount off the mortage.

Quite simply, in the scenario in their article they are wrong as they don't take into account that you'd have to pay an extra £75k making you worse off!


i'll admit that i havent read the article but if the amount you can save and invest is greater than the amount of interest/extra morgage you'd have to pay if you bought the house now then you will always be in pocket.

maybe the article was aimed at first time buyers that live with parents. like i start work this summer but will be living at home for the first year to build up some cash. the longer i stay at home the more cash i can build up and invest so it earns a similar rate to the morgage rates... i think a good few people have forgot that morgage rates and personal savings rates are similar.... so you wont be making/loosing money with regards to intrest.

but if you have a house right now, then typically the new house you are looking to buy is going to cost more so the longer you stay in the old one the more "extra" money you can save and invest. the growth of the price of houses is what has slowed down so in 12 months time they will cost around the same amount but you will have more to put down.
#31
imranmaz
i'll admit that i havent read the article but if the amount you can save and invest is greater than the amount of interest/extra morgage you'd have to pay if you bought the house now then you will always be in pocket.

maybe the article was aimed at first time buyers that live with parents. like i start work this summer but will be living at home for the first year to build up some cash. the longer i stay at home the more cash i can build up and invest so it earns a similar rate to the morgage rates... i think a good few people have forgot that morgage rates and personal savings rates are similar.... so you wont be making/loosing money with regards to intrest.

but if you have a house right now, then typically the new house you are looking to buy is going to cost more so the longer you stay in the old one the more "extra" money you can save and invest. the growth of the price of houses is what has slowed down so in 12 months time they will cost around the same amount but you will have more to put down.



Yes, but the scenario they are using is for the house to increase at 8% a year, £75k over 5 years.

You'd be £75k worse off in their scenario. Not better off as they say.
#32
but why would you? if it is going to continue to increase, then you wouldn't be worse off.
#33
Kitten13
but why would you? if it is going to continue to increase, then you wouldn't be worse off.


If it's going to increase at 8% a year (as per their scenario) then you'd be £75k worse off waiting 5 years.
#34
you wouldn't though, as the house prices would continue to increase.

and the more you can put down for a deposit, the better intrest rates you get
#35
Kitten13
you wouldn't though, as the house prices would continue to increase.

and the more you can put down for a deposit, the better intrest rates you get


So you'd rather pay £225,000 for a house when you could've paid £150,000 for the same house 5 years earlier?
#36
if i was in a better financial situation then yes. but i doubt very much that the house prices will increase by so much over the next 5 years.
banned#37
Benjimoron
Yes, but the scenario they are using is for the house to increase at 8% a year, £75k over 5 years.

You'd be £75k worse off in their scenario. Not better off as they say.


ok i bit the bullet and read the article.

first GLARING omission is savings intrest. a normal savings account will give you 4% intrest on balances. ISAs will give you a typical 5% tax free rate on balances of upto £3600

say on average we have 6000 at a rate of 5% after the 5 years we saved £38,015 (the article only calculated to 4 years)

now 38,015 is 16% of the total house at price 235,000

6000 is 3.75% of 160000

the fact is you wont get a deal with the second percentage. you will with the first.

now we earn more each year and so can save more so you will have even more of a percentage after 5 years.

the point of the article isnt saying we can make money by waiting. its saying if you cant afford it just yet then kick back and save. people with limited morgage choices will get ripped off with a higher rate than someone with the same salary but larger down payment.
#38
Money Spinning
London is only rising because of the olympics apparantly, why would house prices go up for an event that's 4 years away and only lasts for a few weeks once it's on?


well to be fair, east london has been pretty neglected over the years in terms of public service (we pay same council tax as other london boroughs but dont get as much value for money) so whilst i remain a cynical realist, regeneration will do well for the locals to reclaim some form of public transport (most people here have to depend on the extensive network of local buses) worthy of being close to zone 1, i am only less than 5 miles from covent garden but it takes me 1-1.5 hours to get in by bus!

now about the (mis) management of it -- well one can only hope they don't get out of hand. we might move away just before, coz it's just gonna be mayhem for those two weeks :-D
#39
Kitten13
if i was in a better financial situation then yes. but i doubt very much that the house prices will increase by so much over the next 5 years.


Like I said, at the moment they might not. But the artice is bad advice as they say that if house prices increase by 8% a year you'd be better off.

You'd need to save £15,000 a year to keep up with the house price!
#40
imranmaz
ok i bit the bullet and read the article.

first GLARING omission is savings intrest. a normal savings account will give you 4% intrest on balances. ISAs will give you a typical 5% tax free rate on balances of upto £3600

say on average we have 6000 at a rate of 5% after the 5 years we saved £38,015 (the article only calculated to 4 years)

now 38,015 is 16% of the total house at price 235,000

6000 is 3.75% of 160000

the fact is you wont get a deal with the second percentage. you will with the first.

now we earn more each year and so can save more so you will have even more of a percentage after 5 years.


You'd have a bigger deposit, but you'd have to pay £75k extra for the house. There are cheaper ways of getting yourself a deposit early on.

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