Is it a Good Time to Buy a House?

[Guvernator]

Just a question for all the clever financial bods on PH. I am currently in a fortunate position of owning a house which only has about 35% LTV of it's mortgage left to go. I was fortunate enough to buy it before the house prices went ballistic. I've also been taking advantage of the low interest rates and overpaying for quite a few years too.

I bought the house when I was single and now that I am married and thinking about starting a family we'd like to sell up and move to a bigger house in a nicer area. However this of course will mean putting all the equity I have on the current property down as a deposit on the new house and borrowing a sh*t load more on top to boot so my question is, is up-sizing to a bigger house really such a great idea at the moment considering the current financial sh*tstorm we are in or should we just sit tight where we are and ride it out?

[Guvernator]

I agree that mortgage rates are low now but how long will they stay that way? mx stu you make a good point and I am trying to view this in the same way as you in that this isn't an investment opportunity for me but rather the place I intend to live for the next 10-15 years so in that respects you are right.

However if we take out a large mortagage then interest rates go through the roof and house prices crash it will be a bit unsettling. There is also the factor that if house prices are going to drop it might be better for us to hang on as we'll be able to get more house for our money.

Does anyone forsee a reasonable drop in house prices? People have being saying for years that they are too high and the current financial troubles will force a re-adjustment but it has yet to materialise, at least in the SE. The worst that seems to have happened is prices have stayed constant, will we see the massive drops like we saw in the 90's?

[Guvernator]

Again good points although I'm not sure on the house price crash comment. House prices didn't really crash at all in the SE, they merely stopped going up for a few years but there are many people saying that this financial crisis will get much worse before it gets better so a crash\price adjustment may still be on the cards.

E8 makes a good point, I've been looking at houses for 3-4 months now and it seems like the same houses are up for sale for ages but people are reluctant to lower prices to get a sale. Perhaps it's because they have been programmed to believe that house prices "only go up" for the last decade so find a drop hard to stomach, perhaps they have too much money\debt tied up in the house and need to realise a certain amount. Whatever the reason, we seem to be in a strange situation where houses aren't shifting but the market isn't adjusting down to compensate\stimulate demand either

To be honest I'd sell my house for less to achieve a quick sale if the people selling the houses in the rungs above where willing to do the same as I think the housing market is overpriced and a price adjustment is long overdue. Not an easy thing to say as a homeowner myself but I am a realist, whether it will actually happen is the 6 million dollar question.

As for interest rates, again lots of people are forcasting a return to 5-6% at some point in the next 3-4 years but can we forsee it getting higher? At 5-6% I could still afford the mortagage but if they were to rise to 13% like they did 2 decades ago I think I along with a huge number of other people would struggle.

[Guvernator]

^^^ Exactly this. While I am not looking at this house as an investment, the last thing I'd want to happen is for house prices to tank as soon as I bought it. Lot's of people who bought at the top of the price curve in the early 90's just before the crash took 10+ years plus to recover from negative equity. While it shouldn't make a difference if it's a house for living in and not an investment, I think in reality no one would be comfortable owing a huge amount of money on an asset which isn't worth as much especially if the economic outlook is uncertain.

Some of the foremost guys who vocally predicted the current economic crisis about 5-6 years ago are now saying the worst is yet to come and 2013 could be a real stinker. While I am keen to move and start our life in our new house, I am also trying to do as much research as possible to avoid making a mistake as I can't afford to gamble the future financial stability of my family on a Dr Pepper style "what's the worse that can happen"? decision. I guess no one has a crystal ball, just trying to gauge what the confidence of fellow PH'ers is in the housing market, could there really be a house price crash in the foreseeable future?

[Guvernator]

Hmmm so the general consensus seems to be wait a bit? While drops have occurred in other parts of the country, prices haven't really dropped in most areas of London (the decentish one's at any rate) only stagnated. Either this stagnation will continue or we will see a drop at some point.

Nothing is moving quickly at the moment anyway it seems bar a few exceptions so I may not have too much choice especially as Autumn\Winter is usually a very slow season for house sales. I might hang on for a few more months till the new year to see if the doomongers are right.

[Guvernator]

Yep, I read that report which basically confirms that we've gone through a period of stagnation on house prices, however no one bar a few brave souls seem to want to predict what will happen next.

Personally I don't think we'll see a return to massive house price rises any time soon, I mean just how high can they go? They are too high for most people to afford already so I can only see two scenarios for the foreseeable future.

1) The stagnation continues for the next few years. In this case I'd probably still buy\move as stagnation wouldn't worry me.

2) A price re-adjustment or crash, this would worry me and I wouldn't want to buy in that kind of environment until house prices had settled\stopped falling.

[Guvernator]

North London\Hertfordshire suburbs sort of area. House prices haven't really dropped there at all even through the worst of the recession, in fact I think they are a little overpriced for what you get and definitely in a bubble but it's the price you pay if you want to live anywhere in London which is halfway decent.

Figuring out whether to jump in with both feet or wait to see if the bubble will eventually burst seems like an exercise in frustration sometimes but it's one I want to get right for obvious reasons.

[Guvernator]

f1_dragon said:

In exactly the same boat. Been looking for last few months in Finchley/Mill Hill areas and I am staggered at what you don't get for the money. I'd like to think I have my eyes open, have bought in Finchely twice in the last 10 years, but the few appropriate houses that come on that I deem are 'over priced' by some margin are going for asking. That obviously is what the market (and zoopla ) think is fair value, but, but, but....

As someone else mentioned, I'd like to know just who his buying these houses to be honest. Are they Buy-To-Letters or people intending to actually live in them and if they are paying these over inflated prices, are they blindly jumping in or do they know something we don't know?

If the missus was up for living further out and I could stomach the commute I would consider it as you get A LOT more for your money but I just can't stand the thought of spending 3 hours of my life commuting every day and the missus doesn't want to live in the "middle of nowhere" (her words). I think 2013 could be the make or break year for house prices and indeed the economy in general.

[Guvernator]

chris7676 said:

Unfortunately you can't say, it can drag for years if not decades...

Have you considered the Southern fringes of greater London (if suitable)? It looks noticeably cheaper and there are some good areas and overground trains rather than underground.

Personally I think it could go either way, stagnate for years or crash but I think price rises are off the books for a while at least. The problem is even the "experts" don't seen to know. We have a lot of people trying to project a sense of optimism and latching onto any bit of good news and then you have a few who are predicting massive doom and gloom.

South London is a no go for several reasons unfortunately. Firstly I need to be not too far from my parents who also live in North London. Secondly I don't like South London (it's that north\south divide thing )

[Guvernator]

CaptainSensib1e said:

OP, you're getting far to hung up (as many people do) on the nominal value of houses. Inflation has a massive effect on 'real' value over the long term. Even if house prices 'stay the same' they will roughly halve in real terms over the next 10 years if inflation remains around 3%. If prices are 10% lower or 10% higher in nominal terms it doesn't really matter. If you're borrowing to buy inflation is your friend though, as it erodes the value of your debt.

Ultimately, you can borrow very cheaply at the moment, and inflation is eroding your debt. If you think interest rates are going to stay low and inflation moderate, you should buy. If you think interest rates are going to shoot up, and inflation low, you probbaly shouldn't. Personally, I fall into the former camp and bought a house in August.

I don't think I'm getting hung up on the value in a traditional sense, I'm not planning on using my property to prop up my pension if that's what you mean. I am just a bit wary about purchasing a house at an over-inflated price and then seeing it all go t*ts up if the economy goes into meltdown.

I personally haven't been in that situation before but friends have and from what they've told me it was horrible owing a huge amount of money to the bank on an asset which isn't worth what you paid for it. One scary scenario for instance is what happens if you need to sell up in a hurry for whatever reason? Now admittedly this will be somewhat mitigated as I will be putting down a big deposit but I imagine no one really enjoyed going through that situation in the 90's.

I guess this thread was more about trying to gauge how positive people where about what direction the economy, house prices and interest rates would go. I just think it's worth doing as much research as possible before making the biggest financial commitment you'll ever make in your life, the problem is no one seems to know what will happen!

[Guvernator]

Pork said:

If you're trying to play the market a bit, then good luck. If you want to look at the house you've got and be thankful that you've got the equity you've got, just get on with your life and find the home you want to grow your family in.

You sound like you've done very well with your current house, possibly due to timing. If there is a drop in prices, look at it that ist eroding some of the increase in value you had on the house you bought however many years ago you bought.

IMO, now is as good a time to sell/buy another home....but if you're looking to buy for the firs time, then I would say sit tight and see what happens. I'm pretty sure they're not going to be running away in price any time soon....but then I thought that in 2003.

I guess I can agree with a lot of that, I was lucky and "won" in the first round of property snakes and ladders so should see that as my safety cushion for any fluctutions. However for me it wouldn't be about saving money or making a good return on my investment, I am looking at it from the view that if prices do go down, I will be able to get more house for my money which is important as I plan to be there for a long time.

The last line is very true too, all the indicators point to the fact that house prices won't increase dramatically for the forseeable future but then stranger things have happened in the past and could well happen again.

[Guvernator]

masteryoda said:

Have you considered Potters Bar? I was also looking North London/South Herts. Train line is reliable and fairly quick to Kings Cross or Moorgate and houses are a lot more reasonable than North London.

Best places are off of The Walk, a short stroll from the station. High Streets are OK, lots of restaurants. There are a couple of ugly high rise office blocks, but once you get past that it’s not a bad place to live and extremely convenient for commuting by train/car.

Not sure where you work but my season ticket works out cheaper than the tube (say from high barnet).

Yes it's one of the areas we are considering but it seems to be an area of two halves with some relatively cheap houses but again, anything which is a halfway decent size or near to the stations\decent schools is almost the same high price as other areas in North London, definitely a possibility though.

[Guvernator]

PearlGarden said:

This really isn’t about making lots of money out of property anymore. Its about homes and living. Thank goodness!

Nooo, what will happen to all those Home Buying\Renovating programs on telly now then? Think of the children!

For what it's worth I think I agree with you but I think it will take a long time for the penny to drop for all the rest of the amateur "property tycoons" to see the light. I don't think it's entirely their fault though, the entire media industry and government have been shoving the "houses make you rich" mantra down our throats for over a decade now.

[Guvernator]

I'd have to agree with that, compared to average salaries\multiples, house prices at least in the SE are well overpriced and I say that as a current home owner. As stated before I personally don't think my house is worth the asking price and I'd hate to be a first time buyer in this market. A 30% deposit on an average house price of £230k house is roughly £75k which is what someone will have to come up with before there'd even be considered for a mortgage these days which is a big chunk of money to come up with. They then have to borrow another £150k on top of that to just get on the property ladder.

I'm not really sure why they have gone up so high or what is keeping them at this rate, supply and demand in the boom period accounts for some of it as everyone wanted to buy but with prices so high and mortgages so hard to get these days, surely the demand would have cooled off which should have led to a drop in prices?

[Guvernator]

fido said:

Guvernator said:

£75k which is what someone will have to come up with before there'd even be considered for a mortgage these days which is a big chunk of money to come up with.

I reckon quite a few singles and definitely couples who could save that up in a few years. With help from mum and dad probably a lot more can do it. I suspect many don't have the foresight and/or are determined enough to do it. I saved up for my first home and had to give up toys for it, so those who don't do the same don't have that much sympathy from me. It's tough but that's life.

Oh it is do-able with a bit of dedication certainly but how many people have that willpower. I'm just saying it was a lot easier to come up with a £10k- 15k deposit which is what you would have needed previously compared to know so surely the number of people willing to sacrifice and save up the extra is a lot less now which should in theory massively effect demand and therefore prices but it hasn't so they are somehow being artificially kept high. You could say BTL'ers are propping up the marker but even BTL doesn't seem to be as popular is it once was so I'm not really sure what's causing this bubble as all other economic indicators are pointing to a massive price adjustment but it's just not happening.

[Guvernator]

Pork said:

An average three-bed house cost £2,000 in 1952. In 2012 it costs £162,000. That’s an inflation of 8,000%

Between 1995 and 2007 the UK population increased by 5%, the housing stock increased by 10% and house prices increased by 350%, meanwhile mortgage lending by banks increased by 630%.

What does that tell you? In my opinion, the increased lending is the significant driver in this. Funny, the beneficiaries are big bisiness, the mugs paying more for, quite literally, the exact same things are the public.

source

Yep, I don't like to get all tin-foil hat but sometimes when you are presented with cold hard facts like that, it's very difficult not to believe that house prices are being manipulated in some way and it's not for the benefit of the general house buying public.

[Guvernator]

Pork said:

I don't think he gets even a fraction of the 'credit' he deserves for where we are today.

This ^^^^

I really do believe that much of the blame for the state the UK economy is in today can be placed squarely at Gordon's feet. His "no more boom and bust" mantra meant the economy which is usually pretty good at self regulating itself went into overdrive as he basically removed the fail-safes. However he failed to consider the long term effects of this and the further it went up, well the further you have to fall back down again.

Add to that several other brilliant strategies like selling most of the UK's gold surplus at one of the lowest points for decades, only for them to start shooting back up again and overspending massively so that we now have a massive deficit to live with. I truly believe he should be put on trial for his incompetent handling of the UK economy. Phew glad I got that off my chest.