House prices - a reasoned debate please
Discussion
First, let me declare my positon.
For the past few months I've been looking for a house. At the moment I rent, and am in no hurry to buy, but at 33 years old I would quite like a bit of England to call my own.
I'm in a fairly fortunate postion in that I've worked hard and saved a decent deposit, and have a secure job, so there's nothing to stop me from buying now. However like many I'm finding the market very sluggish with low numbers of new properties coming on to the market.
So, I'm wondering if I should buy now or wait. House prices seem to be falling again, and with the economy back in recession I can't see them rising until we see a return to sustained growth. But then as soon as we see some growth interest rates are likely to rise, depressing house prices as mortgage payments will increase.
In short, I can't see any reason why house prices will rise for a very long time, but there does seem to be considerable downside risk. Therefore I am beginning to wonder if I should just forget about buying, try and get a decent return on my deposit for a few years, as better opportunities to buy may present themselves in years to come.
Oh and I don't buy and of the arguments about a shortage of housing pushing up prices. If there weren't enough houses, there would be a lot more people living on the street. I beleive the shortage of new properties to the market is home owners not wishing to sell for less than they paid a few years ago, and everyone battening down the hatches and staying put while they wait for the storm to blow over.
Perhaps my logic is flawed, so I'll open up the floor now. I'd like to keep this thread to reasoned economic debate if possible, no brazen speculation or stupid anecdotal stories of my mate bought a house 5 years ago and just sold it to his Mum for £50k more therefore house prices are going up.
For the past few months I've been looking for a house. At the moment I rent, and am in no hurry to buy, but at 33 years old I would quite like a bit of England to call my own.
I'm in a fairly fortunate postion in that I've worked hard and saved a decent deposit, and have a secure job, so there's nothing to stop me from buying now. However like many I'm finding the market very sluggish with low numbers of new properties coming on to the market.
So, I'm wondering if I should buy now or wait. House prices seem to be falling again, and with the economy back in recession I can't see them rising until we see a return to sustained growth. But then as soon as we see some growth interest rates are likely to rise, depressing house prices as mortgage payments will increase.
In short, I can't see any reason why house prices will rise for a very long time, but there does seem to be considerable downside risk. Therefore I am beginning to wonder if I should just forget about buying, try and get a decent return on my deposit for a few years, as better opportunities to buy may present themselves in years to come.
Oh and I don't buy and of the arguments about a shortage of housing pushing up prices. If there weren't enough houses, there would be a lot more people living on the street. I beleive the shortage of new properties to the market is home owners not wishing to sell for less than they paid a few years ago, and everyone battening down the hatches and staying put while they wait for the storm to blow over.
Perhaps my logic is flawed, so I'll open up the floor now. I'd like to keep this thread to reasoned economic debate if possible, no brazen speculation or stupid anecdotal stories of my mate bought a house 5 years ago and just sold it to his Mum for £50k more therefore house prices are going up.
Slightly off topic, but are you able to get a 'comfortable' mortgage you'd be happy with in the long term? That may partly dictate whether you buy now or wait till you have a bigger deposit etc. It's not always the initial price of the house thats the important thing either - I read somewhere that when house prices are falling people are reluctant to sell and when they are rising there are more houses on the market, and hence you have more choice.
If you find a house you like with a mortgage you can afford, then it might be the right thing to do.
If you find a house you like with a mortgage you can afford, then it might be the right thing to do.
If the interest element of a mortgage on your potential property is lower than what the rent would be on a similar property (as it should be all other things being equal) and you can comfortably afford the mortgage payment, then it makes perfect sense to buy in your circumstances as you will be saving money on a monthly basis and paying into an asset, which happens to be one of life's necessities (shelter).
Even if you end up owning 15% and prices drop 15%, then you own no equity, but any house move will cost you 15% less and you've saved on your mortgage vs rental. The only potential downside is being trapped in negative equity and needing to move, but if you're sensible with deposit and lending multiples than the rest of the UK would be f
ked anyway by the time you got into trouble.
Returns on investments are also actually negative at the moment in most cases, so that's a non-starter.
Re the "non-existant" housing shortage, have you not seen plots being bought up and split into multiple properties/flats where you are, or any massive housing estates going up? In the South East there is a noticeable ongoing increase in housing stock even now.
Even if you end up owning 15% and prices drop 15%, then you own no equity, but any house move will cost you 15% less and you've saved on your mortgage vs rental. The only potential downside is being trapped in negative equity and needing to move, but if you're sensible with deposit and lending multiples than the rest of the UK would be f
ked anyway by the time you got into trouble.Returns on investments are also actually negative at the moment in most cases, so that's a non-starter.
Re the "non-existant" housing shortage, have you not seen plots being bought up and split into multiple properties/flats where you are, or any massive housing estates going up? In the South East there is a noticeable ongoing increase in housing stock even now.
Do the maths. But do them properly, and include all the extras that people forget about. Remember that when you buy a house and the boiler breaks, you have to pay for it, not the landlord.
Be aware of the impact of stamp duty too. If you buy a £300k house now and move to another house in 3 years time you will have donated £9k to the government - that £9k over 3 years works out at the equivalent extra on your mortgage of £250 a month.
So if you buy, make sure it is for the medium term at least. If you think there is a good chance you will need to move again in the next 6-8 years then don't bother buying (unless you are buying under the £250k level where stamp duty has much less effect).
Like I said, do the maths.
BUT
Consider the impact of price rises and price falls in your calculations.
Be aware of the impact of stamp duty too. If you buy a £300k house now and move to another house in 3 years time you will have donated £9k to the government - that £9k over 3 years works out at the equivalent extra on your mortgage of £250 a month.
So if you buy, make sure it is for the medium term at least. If you think there is a good chance you will need to move again in the next 6-8 years then don't bother buying (unless you are buying under the £250k level where stamp duty has much less effect).
Like I said, do the maths.
BUT
Consider the impact of price rises and price falls in your calculations.
Isolated pockets of areas are still seeing strong house price growth, you need to think about where you may wish to purchase and study the history of the area both past and present. Also the future plans for the area which the local Council will hold. At least you should be able to come to some sort of decision following this, but its all a gamble.
It's very difficult, if not impossible, to see prices increasing in the coming years, (outside of prime central London at least) particularly as the BoE base rate doesn't look likely to change for a while.
Whether you hang on for a bit longer rather depends on whereabouts in the country you are considering buying, but quite frankly everyone is only really guessing and the fundamentals of the market are so unusual that it's very difficult to tell where things are heading.
"There are those who don't know, and those who don't know they don't know!"
Whether you hang on for a bit longer rather depends on whereabouts in the country you are considering buying, but quite frankly everyone is only really guessing and the fundamentals of the market are so unusual that it's very difficult to tell where things are heading.
"There are those who don't know, and those who don't know they don't know!"
House prices only really matter when you're trying to move. As said above, do the maths and think about the likelihood of you moving house again in the next few years.
The OH and I have the house on the market now and are planning for this move to be our last for 20+ years. As such, the short and longer-term future value of the next house is of less importance to us than the affordability of the mortgage, the area, the schools, transport links, etc.
The OH and I have the house on the market now and are planning for this move to be our last for 20+ years. As such, the short and longer-term future value of the next house is of less importance to us than the affordability of the mortgage, the area, the schools, transport links, etc.
I know you said you didn't want anecdotes, but I can give you an example of an area that has bucked any downward trend, and an insight into how complex the whole issue of house prices is.
Friend of mine had a large flat in New Cross. Two years ago, it was valued at £230k. He's just sold it for £320k. That's £100k in two years. Why? Well, for one, the lack of properties on the market had caused a mico-economy where people who really want to, or need to (job relocations for instance) buy, are having to accept that it's a bit of a sellers' market. The other reason is that the new Overground service has opened New Cross up to places like Hoxton, and the people who can't afford those areas have followed the 'yellow line' down. It's not a simple market.
Friend of mine had a large flat in New Cross. Two years ago, it was valued at £230k. He's just sold it for £320k. That's £100k in two years. Why? Well, for one, the lack of properties on the market had caused a mico-economy where people who really want to, or need to (job relocations for instance) buy, are having to accept that it's a bit of a sellers' market. The other reason is that the new Overground service has opened New Cross up to places like Hoxton, and the people who can't afford those areas have followed the 'yellow line' down. It's not a simple market.
^ Similarly, a couple i know have sold up with over £500k in equity, and currently renting until they can find a suitable house to buy. They have been looking for over six months, and bearing in mind that £700k doesn't get much of a house (if that) in and around London, they may be renting for some time. But because rates are so low, the interest on their easy access account is not even paying for half the rental. Cash isn't king, if there is nothing to buy with that cash .. but it does buy some flexibility at a cost.
youngsyr said:
If the interest element of a mortgage on your potential property is lower than what the rent would be on a similar property (as it should be all other things being equal) and you can comfortably afford the mortgage payment, then it makes perfect sense to buy in your circumstances as you will be saving money on a monthly basis and paying into an asset, which happens to be one of life's necessities (shelter).
Even if you end up owning 15% and prices drop 15%, then you own no equity, but any house move will cost you 15% less and you've saved on your mortgage vs rental. The only potential downside is being trapped in negative equity and needing to move, but if you're sensible with deposit and lending multiples than the rest of the UK would be fked anyway by the time you got into trouble.
Returns on investments are also actually negative at the moment in most cases, so that's a non-starter.
This was the rationale we used last year when, after 4 years of sitting on the equity from the house we sold in 2007, we decided that the returns on that equity were not sufficiently strong (without taking risks we felt unacceptable) to stop us buying again.Even if you end up owning 15% and prices drop 15%, then you own no equity, but any house move will cost you 15% less and you've saved on your mortgage vs rental. The only potential downside is being trapped in negative equity and needing to move, but if you're sensible with deposit and lending multiples than the rest of the UK would be f
ked anyway by the time you got into trouble.Returns on investments are also actually negative at the moment in most cases, so that's a non-starter.
Renting gave us the opportunity to try a new area (we moved from Wiltshire to the area I grew up, North Yorkshire, something which renting allowed us to do with a lot less hassle than buying would have done) and after a few years, when we knew we could settle, we decided to buy.
Prices seem to have been static in this area, we've spent some money on the house adding a bit of 'value' to it (value is relative, but we've added central heating, rewired etc.) so we're probably even, if we want to view it as an investment. The investments we had the equity in have performed averagely well, keeping up with inflation but little else so we don't feel we jumped too soon.
As a place to live, we have what we want - right house, right village, right area etc. It's also a place we can change to suit our needs, and will be the house we stay in until we retire I suspect, so what it's worth is really immaterial up to the point we want to sell in 25 years or so.
Your circumstances may be different, but the point is there are more aspects to buying vs renting than there first seems, and for most people it's not a purely financial decision.
ewenm said:
House prices only really matter when you're trying to move.
Just to pick up on that point. My wife and I (clearly due to not working hard ebnough at school) are only above national average earners with the handicap of having been born, raised and employed in London. It took us around a decade to get the means to make a purchase, the time it took saw prices near enough treble - hindsight, eh? Anyway, we have ended up paying an obscene amount of money for a relatively humble home that will most likely be the only move we make on the ladder until we have to come down again to release money to pay for our old age (pensions exist only for the public sector and blue chips these days). I have every confidence the price we paid and by extension the size of the mortgage we took out and the balance remaining will have a significant affect on our ability to continue to own the place when our fixed rate period comes to an end, as well as the likely rate we will be offered should values fall significantly within that period.
That is all.
ewenm said:
OP - How much erosion of your deposit matters to you is a personal choice. If you're in the right house, in the right location, with an affordable mortgage, and no plans to move, does it matter whether house prices are rising, static or falling?
At the risk of being a pedantic so and so, the only issue worthy of consideration is if the price of the property you own falls, reducing the equity in the home, this is likely to limit the number of mortgage options, and the rates offered, when you come to re-finance.rah1888 said:
ewenm said:
OP - How much erosion of your deposit matters to you is a personal choice. If you're in the right house, in the right location, with an affordable mortgage, and no plans to move, does it matter whether house prices are rising, static or falling?
At the risk of being a pedantic so and so, the only issue worthy of consideration is if the price of the property you own falls, reducing the equity in the home, this is likely to limit the number of mortgage options, and the rates offered, when you come to re-finance.ewenm said:
...no plans to move...
rah1888 said:
At the risk of being a pedantic so and so, the only issue worthy of consideration is if the price of the property you own falls, reducing the equity in the home, this is likely to limit the number of mortgage options, and the rates offered, when you come to re-finance.
True, although my carefully worded "If..." included "an affordable mortgage and no plans to move". In those circumstances, re-financing is a choice not a necessity.Sheets Tabuer said:
I can't see how prices will fall, net migration last year was 250k yet only 100k houses were built.
Plus as a nation we're getting older and older people tend to live alone, married couples are increasingly getting divorced and there are increasing numbers of households with two income earners as opposed to the past when there was typically only one.Trying to work out what will happen to house prices is just speculation though. At the end of the day, for most people a house is something that you need to live in and hold for many years, not an asset that you strategically trade to make a capital gain.
youngsyr said:
rah1888 said:
ewenm said:
OP - How much erosion of your deposit matters to you is a personal choice. If you're in the right house, in the right location, with an affordable mortgage, and no plans to move, does it matter whether house prices are rising, static or falling?
At the risk of being a pedantic so and so, the only issue worthy of consideration is if the price of the property you own falls, reducing the equity in the home, this is likely to limit the number of mortgage options, and the rates offered, when you come to re-finance.ewenm said:
...no plans to move...
You don't need to move house to switch mortgages.
youngsyr said:
rah1888 said:
ewenm said:
OP - How much erosion of your deposit matters to you is a personal choice. If you're in the right house, in the right location, with an affordable mortgage, and no plans to move, does it matter whether house prices are rising, static or falling?
At the risk of being a pedantic so and so, the only issue worthy of consideration is if the price of the property you own falls, reducing the equity in the home, this is likely to limit the number of mortgage options, and the rates offered, when you come to re-finance.ewenm said:
...no plans to move...
rah1888 said:
Why not? Buy a house, take out a 3 year fixed rate mortgage (for arguments sake), 3 years later that rate comes to an end and you re-finance to another fixed rate deal.
You don't need to move house to switch mortgages.
Which is why I said it was personal choice. You choose a 3-year fix, so choose to have another decision point in 3 years accepting the risk that your equity may be smaller at that point. Or you choose a longer fix in the first place and mitigate the risk of the equity falling. Or any of the other types of mortgage out there.You don't need to move house to switch mortgages.
It's all down to your personal risk acceptance.
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