Saturday, Jan 27, 2007
First Time Buyers risking ever more in the last chance property saloon
BBC News: First-time buyers 'risking more'
First-time buyers are willing to take greater financial risks than ever, a survey by Yorkshire Bank reveals tat 6 out of 10 would consider taking out a substantial mortgage in excess of five times salary just to get on the property ladder.
Posted by enuii @ 04:40 PM (44 views) Add Comment
13 Comments
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1. David20040_0 said...
This article just shows the majority think prices will go up thereby prolonging these outlandish increases.
Not until every parent has remortgaged their home will prices stop rising.
Equity from parent's homes funding new homes and further knocking up prices.
2. bidin'matime said...
The ever increasing multiples have obviously helped to fuel HPI. It therefore follows that, once the multiples reach their natural limit, whatever that may be, this alone must have a negative impact on HPI. Then once people realise that prices are no longer rising relentlessly, they will become less keen to stretch and the multiples will decline back to more sensible levels. This will further impact on HPI as it becomes HPC and then everyone who has not bought will stand back in horror as they see their old school friends sink into negative equity and will themselves declare that they will never risk getting into that position.
There’s nowhere else to go - it’s only a matter of time.
3. Bubbles. . . . said...
What do I do? Im a first time buyer I can sensibly borrow 4 times and get 200K. Im in a lucky job. But do I buy now? Intrest rates are starting to rise, and i personally hope they do rise next month as well.(better return on my deposit money currently some in an isa..)Then this whole crazyness can end..Meanwhile my relationship with my fiancee has suffered im getting older now 32 and still at home!!!! Do I just swallow the bullet and buy..?? Advice would be gratefully received...Cos ive been playing the waiting game for 3 years now and all houses seem to be doing is going up..end of story.
4. enuii said...
Bubbles, I don't know whereabouts you live in the country because the advise you would get would vary depending on your location. A little bit of info goes a long way in the advise stakes.
5. denzil said...
Bubbles. The whole wait and see thing is not completely disimilar to the slot machine junkie or any type of gambler.
For example I used to play the slot machines and at the point I should have walked away I strangely felt lucky and would continue. About 18 years ago I blew my complete Christmas salary in one evening in the pub playing the slot machine, completely convinced my luck was just about to change.
I'm older and wiser now and what I do with any investment is set myself dates or thresholds where I will sell or buy. It takes away the guess work and indecision and the stress.
The problem with considering buying is that it's easy to set a rule like, "if prices are not showing YoY -2% in my area by June I will buy" but if June comes and -2 % has not been met but the press are full of really bearish news then it is easy to be tempted to break your rule and hold back a little longer and the cycle continues.
Ultimately I like setting rules, it allows me to get on with my life, which after all his too short to sit back waiting for things to happen.
Just don't overstretch yourself by getting conned by fear derived from thoughts such as, "if I don't buy now I will never have the chance".
Good luck.
From a personally view I believe in cycles and this round of HPI will at some point go into a down cycle.
6. David20040_0 said...
Multiples reach their natural limit? That has already passed a long time ago. House prices are just going to keep going up and up. 32 and still living at home with that salary. Just shows how bad things have got in the UK.
7. paolo88888 said...
IMHO, trying to guess future property prices should not be the driving factor in deciding to buy a house. Consideration of whether you really want to live there for many years (3% stamp duty is a years rent), that you have found a really good property with no niggling concerns (which would become much greater concerns as soon as you decide to buy), and that you can afford it allowing for eventualities such as rising interest rates and/or redundancy. If these issues are clear then HPC is not a problem, you will continue living there happily. In fact when you come to trade up, HPC may be a good thing because it compresses the levels. However, my recollection of the HPC of 89 was that FTB property which was in any way sub-standard was hit hardest because the FTBs of 96 could afford to "skip the bottom rung". Its like marriage - buy in haste, repent at leisure.
8. dohousescrashinthewoods said...
Bubbles, I am at a similar position (also 32). My wife and I are renting. Around Summer last year we started thinking about buying and I started reading up on the housing market. We have the option of parental help, which is great for us and might just make it work here in Guildford.
Having looked things over, we have taken the decision to stay with renting for now. We are reviewing the decision every 6 months and if nothing happens in the next 2 years we will either buy or leave the country (the latter is looking more appealing as we both love sunshine and don't like a police state)
My reasoning is simple: fundamentals don't change and the market is cyclical. The state of the market is an elephant in the room - it's obvious, but it moves slowly, so it can look permanent. I have an irrational hunch that we are already in an HPC and that the economy is in recession. (Gordon is just flooding the stats with cheap imported labour to hide the facts)
Two anecdotals: I know a couple of high-flyers - one was told by two colleagues to stay the f** away from property when he considered buying a flat for his son and the other is a director in a property company who has cached in his shares. Both have strongly affected my opinion.
With bad news on the increase here and the US paddling hard on the way into a recession, my advice to you would be don't worry about the daily babble from the press. Give it a year. It looks like things are on the move (inflation, interest rates, global debt, global liquidity, etc.) and it will take a while for the picture to emerge.
To balance this, a friend of mine decided to buy because he is nearing 40 and wants to finish his mortgage before he retires. Also, you might choose to bet on inflation eroding the principal.
9. Bubbles. . . . said...
Thank you for all the comments...I like the one about our great country crash Gordon has pulled the wool over peoples eyes with cheap labour..(do housescrashinthewoods...) I believe that is totally true and keeping all the demand in BTL probably continue with Bulgarians on there way here 2..
I have freinds that all have property now im the last one at home. They all have huge mortgages and one has 7 properties he is laughing saying well this month ive made XX and cant spend the money!! Leveraging up to the hilt..He wasnt happy about the last raise in IR. I think its just going to be good if these rises continue it will put some reality back in the market rather than this HUGE bubble that I see it is..Im going to wait til April then if there are enough rises between now and then the market should cool enough for me to put in cheeky offers on places I HOPE!!!!!
10. uncle chris said...
Bubbles - at the end of the day you have to compare the cost of renting to buying. The decision is easy for my wife and I, since we are renting a 2 bed barn conversion for £400 per month, whereas an INTEREST ONLY only mortgage (renting from the bank) on an equivalent property for sale would set us back around £850 - rising to £1000 in a couple of years. With no maintenance to pay, we are able to put away £8,000 per year for a rainy day. Renting also avoids stamp duty, legal fees, estate agent fees etc, and yes, you can be asked to move on at a couple of months notice, but conversly, you can move on if you find you don't like the area, suddenly require an extra room, get relocated for work etc. It's really a decision for yourself, but try to put aside the media driven pressure that you have to buy, then sit down and work out the financial costs or buying and renting. Finally ask yourselves whether you want to be tied into a 25 year mortgage at 4x your salary.
11. bidin'matime said...
Bubbles - also ask yourself whether you would be able to afford to move up to a family sized house, when the need arose, if you mortgaged yourself up to the hilt now, instead of waiting for the cycle to turn down. Life may be uncomfortable now, but it’s luxury compared to the domestic nightmare of trying to bring up a couple of kiddies in a tiny place.
I shall be 52 this year and I know for certain that if I was 20 years younger now, earning today's equivalent of what I was earning then, I could not today afford to buy the house that I bought when I was 32. Work it out - if ordinary people can't afford to buy the houses, the prices must be powered by speculation - which must come to an end. Like Uncle Chris, I now rent a house and pocket the savings - you would do well to do likewise.
12. tyrellcorporation said...
Bubbles, I'm moving into a 4 bed house in Exeter, a week from now. It's gonna cost me 950 a month. To buy the same property will be 1800 a month for 25 years. Renting is great, don't believe the hype!
13. Chillilizard said...
The argument for buying these days seems to be "If I don't buy now, I'll never be able to". As long as houses grow in price at a faster rate than the average wage, it will continue to appear to be so.
But how can it? Hypothetically after 20 years; the value of houses would be so much nobody would be able to buy anything, unless they are selling a house and moving into a similarly priced place. This clearly won't work. As I see it, there are two outcomes; a house price crash (by this I mean drop in house prices - don't give me this soft landing crap) or massive inflation so that wages race to catch up.
The difference between the two is whatever the MPC decides to do with interest rates. If interest rates go up, inflation goes down and a HPC starts to occur. Or interest rates go down or are too weak, and inflation has its way. Or interest rates are just right, so that we maintain the current status quo of high house prices, no crash, a level of inflation that all those lenders can live with, and a whole generation of people spending every penny on their mortgage.
Now you don't want to buy a house in the first scenario.
The second scenario you do because inflation will erode your mortgage; but consider; for every lender there is a borrower and the lender is generally poor and the borrower is generally rich. And we all know who controls NewLabour. What I'm getting at is the rich guys control the MPC which control the interest rates. So although this is possible, there are good reasons why it won't happen. No one can say with certainty what will happen so lets say its a 50/50 shot. Is it a good idea to bet the house on these odds?
The final scenario is already mentioned; we maintain the current status quo of high house prices, no crash, a level of inflation that all those lenders can live with, and a whole generation of people spending every penny on their mortgage. Hell, that sounds like slavery to me. I'd much rather pack it in a move to canada. I'm really not taking this very seriously, its a precarious place to be. Another point is, if these guys couldn't control the boom/bust cycle in the last 100 years what makes you think they can manage this balancing act?