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Adam

My Own Experience As An Ftb

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Hello,

This is the first time I have seen this site, and as it seems to confirm my suspicions, I wanted to let you all in on my very recent experience in the housing market.

I am a single 32 year old computer programmer living in the south east. I have no loans or credit cards, as I have always believed (foolishly?), that unless it is a necessity or investment, it is very inefficient to borrow – why not get a plasma screen TV when you can afford one rather than pay someone interest to have it now?

I have a £32,000 which I have painfully saved over 3 years whilst watching house prices spiral away from me. After receiving a pay rise, I suddenly found myself in a position to be able to buy a house.

I offered on a 2 bedroom semi-detached house with a garage, in Petersfield (GU31 4PA) in May this year. The final offer accepted was £212,500 against an asking price of £220,000. I felt at the time that this discount was reasonable, but not as much as I would have hoped as this house sold for £165,000 three years ago (thankyou land registry!!!).

The sellers were not in a position to procede until 3 days ago, when I went to my solicitor to finally sign the contract. However, at the back of my mind over the past several months I have had a nagging suspicion that I am making a BIG mistake. I decided not to sign and phoned the estate agent for advice.

You may think this is the stupidest thing you have ever heard. Bear with me.

I told him I was thinking of pulling out as I feared that house prices would crash, and that this was the “top of the market”. He reassured me that house prices would not crash as interest rates are low and employment is high. When I asked what he predicted, he said that house prices would remain level for the next few years.

I left it at that. I asked my dad what I should do and he told me that rent was dead money and I should buy.

Then that night in bed I had a revelation (oooeer!), as follows:

1) If house prices are going to be flat, my savings (about £1000 per month) will easily outstrip house price inflation. Therefore in the next few years I will be able to buy the same house for the same price with more deposit and less debt (my mortgage would have been £192000 as I needed money for furniture etc)

2) The interest on my artificially fixed rate (2 year 4.65%) mortgage of £1050 must be about £800 or more? I can rent a 3 bedroom detached house in petersfield for this money. I won’t lose out because the house I would have bought will not have risen anyway, so the usual advantage of capital gain will be lost. Is rent dead money?

Two days ago I called my solicitor, estate agent and mortgage advisor to tell them I was pulling out of the sale as it was an extremely bad idea. The solicitor told me this was probably a good idea and that the conveyancing business was dropping off. The mortgage advisor and estate agent went ballistic and told me I was making a huge mistake. My dad told me I should do whatever made me happy, but that he thought house prices would continue to rise.

I consider myself to be a logical, rational person, and have been looking for ANY opinion that agrees with mine. Scouring my net I found your site fairly easily. It has been an extremely stressful decision not to buy and I would be interested in your honest opinion – have I made a big mistake? Is my logic flawed? Flying in the face of common opinion is lonely and has made me physically ill with stress. Will anyone fly with me?

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pulling out was the best thing you could have done, the soliciter agreed it was a good idea to pull out, i would believe him much more than a Estate Agent.

ril

Edited by ril

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Hello Adam and welcome to the site.

I'm glad you had the sense to see that if it didn't feel right the it probably wasn't. Don't suppose you'll be on the EA's Xmas card list this year though, shame! :D

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Adam

Good stuff! It takes a lot of self confidence to make a decision like that. The vested interests will kill their grand mothers to close a deal and many people would fold under the pressure.

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You were absolutely right not to buy in my opinion. All the data points to house orices going DOWN. Read some more threads on the forum and you'll learn all about it.

As you correctly calculated, if house prices stay the same, you would be better off renting and saving the money.

Renting is only dead money in a rising market!!

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Two ways you can still buy the house but protect yourself from a falling market.

1) Gazunder the sellers -- i.e. go back into the sale but only at a reduced price.

and/or

2) Buy the house but open a spread bet on falling house prices. Never done any spread-betting myself but might be worth checking out to hedge your risk.

frugalista

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Excellent post!

I agree with your philosophy. I was going to buy in March £130,000 3 bed semi in Wirral. Looking back, it was small, bathroom was pitiful and there was no way of extending. I eventually decided, Sod it! I think House Prices have gone as far as they are gonna go.

Admittedly, they still seem to be "reported" as rising. As someone else posted though. How can prices rise when selling prices are lower?

The answer, the majority are based on the asking price and EA's and sellers have inflated their asking price to factor in a 10% drop, or sometimes more.

For every asstute person, like us, there are 50 DICKHEADS that just see WAS XXXX NOW XXXX and think they have a good deal!

My thoughts were this. I was going to borrow £117K on mortgage then with 13k Deposit. I am now looking at buying in Summer/Winter 06. At this time I will have 30-35K. I could get a mortgage for £105K which is me and partner x 3 salary. and have a final purchase price of £135-140K. But the house I buy for this amount will be a £170K house NOW!

This means I am buying a GOOD house, at a GOOD price with an affordable mortgage.

If your in NO RUSH then keep saving and restrict the amount you borrow.

TD

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Well, a site like housepricecrash is probably going to be biased towards your final decision.

IMO your logic was correct and I certainly don't think you will regret it.

Don't be pressurized into making a huge leveraged investment by vested interest propaganda based on their blind faith alone.

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If you dont HAVE to buy then simply walk away.

Some people might say its now or never and that you should buy before prices rise out of your reach but consider this, if you cannot buy in the future then who can?

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Adam,

Try the impartiality stress test on the responses you received.

Solicitor - Had already earnt his fees.

EA - fees not earnt till sale

Mortgage Broker - fees not earnt until mortgage in place.

Doesn't guarantee that the solicitor is right, but he is probably playing with much straighter bat under the circumstances. :)

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1) If house prices are going to be flat, my savings (about £1000 per month) will easily outstrip house price inflation. Therefore in the next few years I will be able to buy the same house for the same price with more deposit and less debt (my mortgage would have been £192000 as I needed money for furniture etc)

2) The interest on my artificially fixed rate (2 year 4.65%) mortgage of £1050 must be about £800 or more? I can rent a 3 bedroom detached house in petersfield for this money. I won’t lose out because the house I would have bought will not have risen anyway, so the usual advantage of capital gain will be lost. Is rent dead money?

If you are not someone just posting here with a made-up story to back your house price crash point of view, (unbelievably it appears some people haven't got anything better to do), I would say:

You have done the maths, and the numbers don't lie. Be careful about your assumptions, though. Your point 1) above is true, AS LONG AS HOUSE PRICES DON'T RISE. Buying a house is a GEARED investment for most people: you borrow money to buy something more expensive than you can afford. If prices rise, your gains - and your lossess - are massively magnified (that's the gearing). So jsut because your depost is keeping pace or out-pacing house prices doesn't necessarily mean you are not 'losing' money if house price inflation is positive.

If you are saving, make sure you are doing it tax efficiently, ie. in an ISA first of all.

Your point (2 is correct. But it is probably more correct than you realise: if you buy the house you will have to pay stamp duty, legal fees, buildings insurance, maintenance costs. You escape all these by renting. Remember your assumption, though "[the price of the] house I would have bought will not have risen anyway". Are you sure?

It all comes down, as you have worked out, to your view on the future course of house prices. Be wary of regional differences. What are prices doing in YOUR area.

For what it's worth, I think you are doing the right thing by NOT buying. Rent money is as dead as mortgage interest money, ALL OTHER THINGS BEING EQUAL (which they never are). At the moment you may find that rent is a pretty good speculative investment!!!

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We also pulled out of a purchase quite late on. The process had dragged on and on over 4-5 months as the sellers tried to get their act together and find a place to buy. During that time, the market softened noticeably and better properties began selling for less than we were offering. We asked for a few thousand off the price but the sellers would not budge.

Adam - you might find you get a call from the estate agent asking you if there's any price at which you would like to proceed. We did. But you know how it is - the moment has passed and desperation is never that attractive.

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If you like the house why not try a gazunder at a price that you do feel comfortable with? How about £200K or even £195K. The seller will probably try to pass most of the reduction down the chain. You never know your luck and if you feel you have an absolute bargain then when the prices fall you may not loose out. Isn't this the way it works in a falling market?

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If you like the house why not try a gazunder at a price that you do feel comfortable with? How about £200K or even £195K. The seller will probably try to pass most of the reduction down the chain. You never know your luck and if you feel you have an absolute bargain then when the prices fall you may not loose out. Isn't this the way it works in a falling market?

Unethical to some, but yes :)

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Will anyone fly with me?

I'm scared of flying!

Although very definately in the bear camp, I would encorage people to think about the local market rather than the national market when making a decision.

I am not really up on your area but a 30% increase over 3 years does sound like a bubble to me.

Edited by Young Goat

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Your dad says "renting is dead money". This statement is not very useful in isolation as it is highly dependent on a whole bunch of numbers: cost of renting, opportunity cost of buying, mortgage interest rate, rate of appreciation/depreciation of house price, savings rate, future interest rate movements etc.

You are a numerate person. Go through the maths with your dad and show him why you came to the decision to buy later rather than now.

frugalista

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Well, a site like housepricecrash is probably going to be biased towards your final decision.

IMO your logic was correct and I certainly don't think you will regret it.

Don't be pressurized into making a huge leveraged investment by vested interest propaganda based on their blind faith alone.

IMO your clear thinking has saved you money and avoided future grief. It's not just my opnion but what I have done myself. Back in May I sold to move to a new job in a new area. I spent a couple of months looking at houses with a view to buy, generally getting the impression that they were not worth anything like the asking price. Eventually I found HPC and started getting educated about house prices and the economy more generally. I am now renting, investing the proceeds of my sale and saving - ready to buy in a year or two, or later if necessary. Everyone makes their own decision about the balance between the economics and the wish to have a home of their own. I'm glad you followed your feeling that something was amiss and now I would really advise you to follow the key past threads of discussion and the other resources on this site to get some real understanding of the housing market. It will be a revelation and put you in a great position to decide on a more informed basis when the time to buy is right. Good luck!

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Sadly it is not so easy to predict. Factors like Immigration are still very strong. Although interest rates are rising, wages are also starting to rise (seemingly).

Investors will be able to buy that 200k house for 120k in April and rent it out, avoiding tax and a negative after tax higher savings rate, in line with the past 8 years of legistlation moving towards a propertied class. The credit market looks ready to polarise and you will be paying your ID card and higher taxes to pay for 'key worker schemes' etc.... in a few years. Council taxes may well double again in a few years.

I would say that you have made a rational choice, as these forces are stacked against you beyond your control. 200k is a LOT of money.

In many ways negative effects are showing through;

1. As prices stop rising - people stop spending and start saving and consumption drops.

2. Labour mobility will be affected by high prices - as we can already see, the government is trying to get 'keyworkers' into expensive cities via subsidy.

3. Rising material prices and costs (taxation, time etc..) are reducing profit margins and leading to increasing unemployment.

4. Economic growth may not be far from collapsing.

If there is a recession, with higher interest rates, there should be a decline in prices and the possibility of negative equity with corresponding higher rate of saving, and further reduction in consumption. It probably is better to wait it out at this jucture.

I now people who have quit work to take a year out to go around the world on a few K and found they had saved so much money on rent, council taxes, bills and taxes they were no worse off, plus they had the joy of once in a lifetime experiances which were priceless. You could not do this with a 200K mortgage.

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Sadly it is not so easy to predict. Factors like Immigration are still very strong. Although interest rates are rising, wages are also starting to rise (seemingly).

Investors will be able to buy that 200k house for 120k in April and rent it out, avoiding tax and a negative after tax higher savings rate, in line with the past 8 years of legistlation moving towards a propertied class. The credit market looks ready to polarise and you will be paying your ID card and higher taxes to pay for 'key worker schemes' etc.... in a few years. Council taxes may well double again in a few years.

really? Its a wonder that people can make any money at all on the StockMarket or any other of these assest classes.

Bank and Building Society cash deposits

Government Securities

Authorised unit trusts

Shares in London Stock Exchange listed companies

Shares quoted on a recognised overseas stock market

Quoted debentures and loan stocks

Commercial property, with or without a mortgage

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OK, several people have said, in so many words, that "it is not clear" what house prices will do. But don't get side-tracked by what news stories are saying about national averages. Find out as much as you can about what is happening in the area YOU want to buy. Note down asking prices for a range of properties you have seen or know something about. Use houseprices.co.uk to find actual sold prices around three months after their sale, if there is one.

Plus, the holisitc approach: work out what makes you happy and go for it. If you are still of an age and disposition to go travelling, etc., then definitely carry on renting. Maybe you would enjoy more time for leisure interests/socialising rather than DIY (which almost inevitably comes with buying a house, however pristine)?

Take this one step further and combine with some international economics. If you have a readily exportable skill, in what part of the world could you earn the most and spend the least? Would you fancy living there for a while? I know people who earn much less than you by workign abroad, but their expenditure is reduced by even more. Result: higher standard of living.

If you really want to set up your own home in the UK, keep an eye on things as above.

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Perhaps I should clarify.

I am a divorced computer programmer currently renting.

I thought my financial postion was more relevant . Perhaps you do all your thinking that way....

am i supposed to put 'lol' now?

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Personally I think that if house prices do start rising again it will be at a much lower rate. We've had the big rises over the last few years. You've made a brave choice considering you have the buying power to get a house now. Many of us have no choice but to stay out of the market, so in some senses we can rest easy.

Considering you are managing to save a large amount each month, which ought to comfortably outpace any near future rises, I think you are in a strong position now.

I'm from over the border in West Sussex, and prices appear to be static around here. If it was my money I'd wait it out a bit longer yet.

Edited by Tentpeg

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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