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pennee1981

First Timer

Posts:5

10/06/2008 2:41 PM	Alert
I'm interested in people's views on this... Professional couple, combined salary in excess of £50k. Trying to save a substantial deposit by not running a car. Living in a rented flat which we hate, lining the pockets of a BTL landlord. Want a house. Before when the house prices were stupid (and yes, they still are I know) it was simple: keep saving and hoping they come down. Now they start to come down at a time when we are desperate to move, we've been renting flats for too long! But do we dip our toe in the water or stay clear? I'm thinking that if something came along, we could make a low offer and see where we get with it, in the hope that we can get out of this awful, new build, paper-walled flat in time for Christmas. Family and friends have different views...the news has a new headline every day...of course it all depends on the mortgage lenders. ...So what are your opinions and experiences? It's a very confusing and tense time for would-be buyers...

Asteve

Activist

Posts:930

11/06/2008 2:55 AM	Alert
It is a tough call, but if you've any hope at all of affording the debt at any level house prices sell today, you are definitely able to afford not to live in a flat. The rental price of houses as a ratio to the sale price is far better than for flats, so - while you might not be saving your deposit as quickly, you will be still be able to increase your cash war-chest while living in a house. I know that renting is not the same... but maybe it is a compromise? I had anticipated that by the end of 2008 we'd see 20-35% falls in nominal house prices... Yes, I know that is extremely dramatic... I still think we will see them - but probably by the end of 2009 not the end of 2008. From an financial perspective, it definitely makes a lot of sense to rent... plus, if you have savings, you'll be a far better bet than many renters and might be able to negotiate discounts on rentals of houses. Of course, it is worth checking that there's no huge outstanding mortgage on the property you rent - this can be done for £3 from the land registry AFAIK. As for making offers on houses for sale, I'd give a few bits of advice: 1. Get your mortgage approved "in principle" - in writing - from a credible lender... this document will make any offer you choose to make a firm offer. Do not, under any circumstances, fall for the argument that you can afford a 2-year fix, and another cheap deal will be available in 2-years... plus, I think, it would be a very good idea to make sure that you can factor in the risk of interest rates resembling those of the early 90s... where some had to pay 15% mortgages for over a year. 2. Realise that I consider you insane if you pay any price above that typical in 2001. This information can be found for various areas in the www.nethouseprices.com database. 3. Realise that many expect house prices to continue to slide for 3 to 4 years... so, a substantial deposit is likely to be necessary. 4. If you rent a house you like - and the owner needs to sell - in a market like this... you might be given first refusal... so renting somewhere you'd like to live might play-out well. The sort of house I'd want to buy was being offered for £325K in 2007. I am looking to pay ~£220K for that kind of property - and I intend to buy with a ~50% deposit... I think it is far too risky to buy right now - plus - the advertised asking prices are around £280K. Estate agents expect offers 10% below asking - so £252K would be a credible offer. It still has a way to drop. Given that securitisation is all but dead; that Sterling is in crisis relative to the Euro (hence our spectacular increases in indices related to the cost of living); Hints from the IMF and ECB are that central bank interest rates are more likely to head upwards than downwards - and we're yet to experience the effects on the risk premiums that will be charged on lenders when the UK subprime (OK non-doc; non-conforming; >100% LTV; self-cert; 120% rent BTL) mortgages start to implode. Mortgage lenders including B&B,HBOS,RBS,Barclays etc. are in deep-deep trouble with unprecedented funding problems. There are two waves of "resets" on the cheap rates of 2-3 years ago... which look set to near double mortgage rates for millions of mortgagors... the first was this spring; the next is this autumn. I'd expect essentially insolvent mortgagees to be able to hold-on for, say, 3-6 months by borrowing everywhere imaginable (not paying bills; running up credit cards; selling cars - etc) and then it typically takes another 3 months of default before repossessions start. All this said, of course, it doesn't make it pointless to be making offers that others would have considered senile last year... The market is dead... the British have been living well beyond their means... your offer to pay 50% of the supposed value of a house might be the offer that saves someone else from bankruptcy. You never know if you don't ask... just don't be bullied into a more than 3.5x mortgage... and don't believe anyone spinning codswollop that we're near the bottom for house prices. If you believe that sort of nonsense then you deserve to join the desperate mortgagors whose finances are heading straight for Armageddon. At the risk of "stating the bloody obvious" - I'd also suggest that you only buy a home you love... I don't envisage anyone buying now being able to trade-up for the forseeable future (say a decade or more).

chefdave

Activist

Posts:482

11/06/2008 9:43 AM	Alert
It sound like you're earning a fair amount so it seems prudent to wait for prices to come down even further which they will and continue to save, unless you can get a real low offer accepted of course. Be careful where you put your savings too, not more than 35k in any institution and probably not with Banks such as the Bradford and Bingley, just in case the worst does happen.

pennee1981

First Timer

Posts:5

11/06/2008 10:52 AM	Alert
Very interesting viewpoints, thank you. We're going to dip our toes in the water, so to speak, by viewing a house and asking some questions, and getting some advice from a mortgage advisor. That may well be as far as it goes for now, unless we love a property and get a really low offer accepted - it's a tough call because we really want to move but don't want to make a rash decision. The idea of finding a house to rent is a good one, though it all depends on location - we don't run a car therefore we need to be near to the rail station and we are between two cities so that we can get to our respective jobs - so location is everything. All depends what's available... Any other opinions welcome...!

chefdave

Activist

Posts:482

11/06/2008 11:07 AM	Alert
If you find somewhere that's right for you at the right price then go for it. I hope you have pretty good job security too and are at least giving this a bit of thought as it (may) become important in the future.

pennee1981

First Timer

Posts:5

11/06/2008 1:39 PM	Alert
Posted By chefdave on 11/06/2008 11:07 AM If you find somewhere that's right for you at the right price then go for it. I hope you have pretty good job security too and are at least giving this a bit of thought as it (may) become important in the future. Yes, we are fairly confident about our job security - but then buying a house is a huge decision at any time and we are well aware of the risks and potential consequences. Good point well made chefdave! The advice so far does seem gloomy at first glance but very sensible - I do feel that time is on our side so we won't rush in to anything. I've found the sites propertysnakeand nethouseprices and they are really useful (found something to keep me occupied at breaktimes...)

chefdave

Activist

Posts:482

11/06/2008 2:02 PM	Alert
A couple of other sites may be of interest to you, depending of course if you're want to understand a bit more about what the heck is going on at the moment or just want to buy your own place and then get on with life. Housepricecrash is useful and so is ukhousingbubble blogspot too. I'm also aware of a programme called property bee which keeps tabs on houseprice reductions on sites such as rightmove etc. Apparently its very good, although I personally havn't installed it due to prices being way out of my reach even with 20%+ falls, but it may be of benefit to you.

Asteve

Activist

Posts:930

11/06/2008 4:18 PM	Alert
:-) housepricecrash.co.uk might prove a bit hard-core... for practical purposes... The material posted there, however, I find fascinating - it is quite intoxicating. It is politically charged and frequented by investment types... as well as amateur economists and vested interests of all manner of sorts... not to mention conspiracy theorists and The competing website is www.globalhousepricecrash.com - which has a few of the same posters, less traffic - and generally lower testosterone levels (though you might not think that at first glance at the inappropriate promotional T-shirt shot... ) Alice Cook's ukhousingbubble blog is also good - however, being a blog, it does concentrate on one person's ideas... If you are focussed on a very small area, it can't hurt to get to know the locals... to find out if there is any vacant property... to find out if it might come available to rent or buy in the future. With such information you can always approach the owners. Nothing ventured, nothing gained... as they say. There isn't much harm in exchanging phone numbers... plus, if it is a rental - if you explain that you're willing to move when it becomes vaccant, you can likely negotiate a far better rate as only 2 months void for a landlord significantly reduces the annual yield. Best of luck, etc.

crisper

First Timer

Posts:10

13/06/2008 12:16 AM	Alert
I am a little taken aback by the casual advice given here, on the practicalities on how to buy a house, but not much on whether it is a good time. Before you even consider switching from renting, bear in mind that sitting out a 10% annual fall in prices would save you probably the equivalent of 1-2 years rent in a year - on an equivalent property. In other words, if you rent for another year (instead of paying mortgage interest), after a 10% fall you will have saved all that rent money, maybe twice over, on the reduced price of your dream property. And by last months indications, the prices are probably dropping more like 15% = maybe 3 times rent for some. Renting and waiting at the moment is free money. Don't touch property with a barge pole.

Asteve

Activist

Posts:930

13/06/2008 1:22 AM	Alert
All very pertinent, Crisper. My own workings are these... £800/month rents a £250K house. rent : £9,600/anm capital expenditure saved (7% house price drop) : £17,500 mortgage expenditure saved 60% mortgage @ 7% (including fees) : £10,500 saving interest saved (60% mortgage @ 5%) : £5,000 [£3,000 after tax] maintenance budget & buildings fabric insurance saved : £1,000 (probably a vast under-estimate) This gives me a gross saving of £34,000 or a net savings of £21,400. In this calculation, I've omitted potential benefits should the property cross the £250K stamp-duty threshold (worth £5,000 extra); the fact that I'd likely have otherwise been paying interest on £17,500 for a decade or longer until I repay my mortgage; the strong likelihood that real estate prices are yet to crash as a wave of defaults and repossessions sweeps the UK - just as it did in the USA... and, for me, probably the most important... that I am free to move to anywhere else in search of work within a month at zero extra cost... which means my future income is far better assured than if I were tied to one location... which would also allow me to take advantage of the 7% decline in rental prices... as well as to best negotiate my pay... secure in the knowledge that I've a comfortable savings buffer to fall back on should the worst happen. It is also worth noting that to "save" £21,400 from earnings would require a pay rise of £32,100 - in order to offset income tax and NI. The down sides - the reasons I'm not a happy renter... are essentially that I don't control my environment. The decoration is a sucky colour and the walls are wood-chipped (eeugh!) and I don't feel settled enough to invest my weekend time building a workshop in my garage... Conversely, I don't spend my weekends doing DIY and, instead frequent restaurants; attend theatre; visit friends etc...

slicedcake

Activist

Posts:313

13/06/2008 9:42 AM	Alert
Posted By Asteve on 13/06/2008 1:22 AM Conversely, I don't spend my weekends doing DIY and, instead frequent restaurants; attend theatre; visit friends etc... DIY free weekends could be a good thing.

pennee1981

First Timer

Posts:5

13/06/2008 10:49 AM	Alert
Well - we went to see the mortgage advisor yesterday. He was totally independent and looked at everything available that day. It was a really useful afternoon, and I understand a lot more about how the prcess all works. We know now what our budget is likely to be, though it shocks me that lenders still give people an upper limit of some ridiculous figure! We then went to view the house we were wondering about. Again, something else that was really worth doing - I can't believe how choosy i'm feeling! It's been on the market 18 months, an old dear in a 3 bed detached who (according to the neighbour) is in two minds about wanting to move. Considering the work that would need doing (mainly decor but there is a potential job in moving the garage to secure the garden), the price she's trying to get is WAYYY too much. Thanks to this thread and 'having a go' at the whole process yesterday, we feel better informed and are aware of the strong position we are in. We know that the longer we rent in our flat, the more we save, but if something was to come on at a good price, and we really liked it, I think we'd go in with an even lower offer and just see what happens. We know we are in no rush. Or perhaps I'm not ready to get my tools out

chefdave

Activist

Posts:482

13/06/2008 12:24 PM	Alert
"the price she's trying to get is WAYYY too much" The housing market has become so distorted distinguishing the value of the home from its price is a toughie. A one bedroom flat that I saw in my old hometown in Surrey was on the market in December for 160k, going on my gut instinct and nothing else I think its probably worth about £50k, maybe £60 at an absolute push, which is still a lot of awful lot of money for someone looking at what is essentially a starter home. I think that sanity is slowly being forced back into the market however and that the prudent, like yourself, will reap the rewards.

slicedcake

Activist

Posts:313

13/06/2008 3:10 PM	Alert
Posted By chefdave on 13/06/2008 12:24 PM "the price she's trying to get is WAYYY too much" The housing market has become so distorted distinguishing the value of the home from its price is a toughie. A one bedroom flat that I saw in my old hometown in Surrey was on the market in December for 160k, going on my gut instinct and nothing else I think its probably worth about £50k, maybe £60 at an absolute push, which is still a lot of awful lot of money for someone looking at what is essentially a starter home. I think that sanity is slowly being forced back into the market however and that the prudent, like yourself, will reap the rewards. Yes, flats have silly prices in terms of pounds per square metre of floor area etc.

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