To Buy Or Not To Buy

[scimus]

We bought our first home 2 years ago but I've since changed job and has worked in a different city from my husband's for the last 1.5 years. For a year I committed to 2 hours commute each way every single working day before finally deciding that I've had enough. Then I tried renting and staying in hotels during the week, but it was like my life had reduced to 2 days a week and I spent the rest of the time missing it, and wasting my evenings in a place that I don't really care. So now we're looking at the option of buying a 2nd home - a place that I could love and we (including our pets) could visit each other every other weekend.

We saved quite a bit during the last 2 years such that we're very close being debt (including mortgage) free even though we're only in our 20s. But buying a 2nd home would mean moving away from this safe situation. It would mean taking at least 150k debt between the two of us, which is totally serviceable given the current mortgage rates but might get slightly dangerous if the rates go up to say, 6% and if at the same time one of us loses our job.

Our parents and friends think we shouldn't be worried since we're at the start of our careers and therefore salaries should rise and even if one of us looses our job we could simply rent the other house out as we've taken precautions and bought in a student area.

One colleague recommended that I seek advise from this forum so here I am. Any suggestions?

[Butthead]

What are your/your husband's long term plans? It strikes me that the situation you are both now in is pretty unsatisfactory, if I was in your position I'd be wanting to fix things so you could live together all the time and if that can't be done now it would be a priority for as soon as possible. If you agree, when will you be changing things so you can live together?

I don't see that buying a second home rather than renting one is really a solution. Sure we could talk about the advantages of being able to have pets and decorate versus the disadvantages of maintenance, risk and inflexibility of future plans but those are minor points and are themselves value dependent on how long you'll be in this position.

[Venger]

Our parents and friends think we shouldn't be worried since we're at the start of our careers and therefore salaries should rise and even if one of us looses our job we could simply rent the other house out as we've taken precautions and bought in a student area.

More likely to lose your job under some of the bosses I know, if they saw that, now very common, embarrassing mistake in any form of company letter/email document. I've seen rage. Keep thinking about the pay-rises though, and more homes to buy.

[scimus]

What are your/your husband's long term plans? It strikes me that the situation you are both now in is pretty unsatisfactory, if I was in your position I'd be wanting to fix things so you could live together all the time and if that can't be done now it would be a priority for as soon as possible. If you agree, when will you be changing things so you can live together?

Yes, we've been looking at long-term plans and we agreed it would be much easier for him to find a satisfactory job in my area once he finishes his fixed term contract in academia in a years time than it is for me to go back to his place.

Plan A is for him to come working here with me in a bit and rent out our old place, which is right next to a big uni and a town centre.

Plan B is for both of us to move to London in 2 - 4 years time where there're plenty of jobs for both of us, but the imminent hike in cost of living would mean a long time before we could afford to buy a house again which is why we're trying not to go down this route. He would also have to change to a high pressure sector, as I'm currently in, which would probably do more damage than the commute.

If we buy we'll again buy in a high yielding area to make sure if we have to leave it can't be rent out.

[Butthead]

Why is the plan to rent out the place he's living in once he doesn't need to live in it? Why not plan to sell it?

You could buy a house now where you live and sell the one he lives in in a years time. You might get a 2 year fixed rate mortgage which will be exceptionally low cost and when you come to remortgage you'll need a much smaller mortgage due to the funds from the house sale.

[scimus]

Why is the plan to rent out the place he's living in once he doesn't need to live in it? Why not plan to sell it?

You could buy a house now where you live and sell the one he lives in in a years time. You might get a 2 year fixed rate mortgage which will be exceptionally low cost and when you come to remortgage you'll need a much smaller mortgage due to the funds from the house sale.

Yes selling will always an option, when it makes more sense than renting out. At the moment the mortgage payment is 500 while the house could be easily rent out for 750, which is why we're not considering selling

[scimus]

We're actually looking at a 5 year fix, the rate of which is only marginally higher than the 2 year fix. The existing mortgage, on the other hand, is a 25 year offset tracker, which will go up when base rate goes up. Over the last 2 years the offset allowed us to gradually build up a saving such that now 80% of our monthly repayment goes towards capital repayment and only 20% is interest and in 6 months time we could pay off the mortgage, if we choose to.

Since mortgage rates are lower now than 2 years ago, we could use part of that saving to put down as a deposit, say 30%, and take out a 5 year fix at 2.9% or 2 year fix at 2.5% . If both of us are still in jobs in 2 years time and we have watched our spending as we did so far, we should again be able to pay off the first mortgage, even if the base rate go up a bit. Then we could sell or renting out depending on the circumstances...

[scimus]

More likely to lose your job under some of the bosses I know, if they saw that, now very common, embarrassing mistake in any form of company letter/email document. I've seen rage. Keep thinking about the pay-rises though, and more homes to buy.

Sorry will paste into word next time to check before I post, if that annoys you.

Thanks.

[Butthead]

Yes selling will always an option, when it makes more sense than renting out. At the moment the mortgage payment is 500 while the house could be easily rent out for 750, which is why we're not considering selling

I think your question and also your answer are both tinged with a 'house prices will be stable or rise, houses are a good investment' mentality. That's not unusual, but on a website called "Housepricecrash" you can expect it to be challenged. And challenge it I will

On the matter of renting for £750 somewhere which is costing £500 per month in mortgage, mathematically right now your logic is superficially sound. But in a scenario of falling house prices how much of a percentage fall would there have to be for you to lose £3k (the annual difference) on your house? Probably not that much, and that skew the maths against you. Plus what will it cost to maintain, what void periods will you get, what will the mortgage rate be when you change your existing residential mortgage to a BTL one...? And then there's the stress of being a landlord, dealing with issues etc.

Then you say "selling will always be an option". Yes, but at what price? Are you always going to be able to sell the house for what you think it's worth? When you want to? Quickly and easily? Not necessarily.

Your plan involves owning two properties, in an environment where interest rates have only one way to go and when one of you losing your job would mean financial hardship. You could change this plan so that one way or another you only own one property which you live in and have considerable equity in it. Your plan is risky. The alternative plan is much safer regardless of what the future holds.

Best of luck.

[scimus]

I think your question and also your answer are both tinged with a 'house prices will be stable or rise, houses are a good investment' mentality. That's not unusual, but on a website called "Housepricecrash" you can expect it to be challenged. And challenge it I will

On the matter of renting for £750 somewhere which is costing £500 per month in mortgage, mathematically right now your logic is superficially sound. But in a scenario of falling house prices how much of a percentage fall would there have to be for you to lose £3k (the annual difference) on your house? Probably not that much, and that skew the maths against you. Plus what will it cost to maintain, what void periods will you get, what will the mortgage rate be when you change your existing residential mortgage to a BTL one...? And then there's the stress of being a landlord, dealing with issues etc.

Indeed well challenged. But just let me point out the interest part of the mortgage reduces quite quickly for us while rent is unlikely to reduce. The saving is more likely to be well over 3k, given the equity we will have in both homes, which is 50% and 30% to start with, and rising to 90% and 35% in two years time. An 8k reduction in price is a 5.5% fall, which is possible but here's the thing: 1) The area has already seen big reductions since the peak 2) In a crash smaller/cheaper homes see smaller reductions as demand for rented accommodations increase. You're right about maintenance which is sth we'll look at. We're not concerned about voids given the difficulties we had trying to find a place to rent in this area earlier - e.g. contracts were getting signed 3 months before moving in; landlords insist on min 1 year lease, etc. The lender seems OK with giving us permission to rent out when I discussed with them, with a small charge, given that we stay in the house for 3 years.

You're right in saying we're taking a risk. We'll take a hard look at our situation.

[Venger]

If we buy we'll again buy in a high yielding area to make sure if we have to leave it can't be rent out.

Good luck with that. If HPC gets going in sought-after areas which have been somewhat reliant on global stimulus, you could be experiencing similar yields as other landlords have been experiencing, unable to see the wider view of things.

Possibly opening yourself up to double the effect, with more than one property.

Also, Word won't help you if you don't understand the difference between lose and loose.

In full: http://www.home.co.uk/company/press/btl_disaster_zones_property_investors_beware.htm

[scimus]

Good luck with that. If HPC gets going in sought-after areas which have been somewhat reliant on global stimulus, you could be experiencing similar yields as other landlords have been experiencing, unable to see the wider view of things.

Possibly opening yourself up to double the effect, with more than one property.

So people stop going into Universities; town centres deserted and no jobs left. It is more likely that a global crisis will hit where everything goes down, not just HP but every type of assets that is credit related. How will you protect your hard-earned cash? The value of bonds and shares will drop like a stone, cash isn't safe either as you don't know if the bubble will burst by inflation or deflation. Gold is most likely to be confiscated (in fact I do have some physical gold in an offshore vault, just in case).

What can we do in times of such uncertainty apart from work hard and save hard and move on with our lives? You may think that property isn't a good store of value but what is? We're not buy-to-letters, mind you, buying in sought-after areas give us the flexibility to not having to sell in the case of an HPC. In the long run, however, HP should go up with inflation.

I actually quite like the idea of selling one of the properties in 2 years time, in which case we'll be mortgage free with a bit of cash, especially if the market is popped up by the "help-to-buy" scheme. Then we wait till London goes down. Sounds too good to be true, doesn't it?

[Venger]

So people stop going into Universities; town centres deserted and no jobs left. It is more likely that a global crisis will hit where everything goes down, not just HP but every type of assets that is credit related. How will you protect your hard-earned cash? The value of bonds and shares will drop like a stone, cash isn't safe either as you don't know if the bubble will burst by inflation or deflation. Gold is most likely to be confiscated (in fact I do have some physical gold in an offshore vault, just in case).

What can we do in times of such uncertainty apart from work hard and save hard and move on with our lives? You may think that property isn't a good store of value but what is? We're not buy-to-letters, mind you, buying in sought-after areas give us the flexibility to not having to sell in the case of an HPC. In the long run, however, HP should go up with inflation.

I actually quite like the idea of selling one of the properties in 2 years time, in which case we'll be mortgage free with a bit of cash, especially if the market is popped up by the "help-to-buy" scheme. Then we wait till London goes down. Sounds too good to be true, doesn't it?

Plan A is for him to come working here with me in a bit and rent out our old place, which is right next to a big uni and a town centre.

Ok not BTLers, but still property-investors of some sort. Let-To-Buy. Property guru?

Move on with your lives? Nothing against that, but in your 20s and looking at buying 2nd homes, when many on this site view house prices as highly over-valued, is taking it an extra step beyond what many people would justify as ordinary expectations.

I'm fully liquid, with my money in low-interest savings accounts, and have been for years, so yes, lost out on big gains in other investment classes. There may be risks to that, as you suggest, but I'm happy to take my chances. For the time it becomes an advantage to be in money, against other assets falling in value. The type of returns as seen in property market for decades, but for cash. That's my theory and I wouldn't blame you if you thought it dumb, for it has been for a very long time, with some exceptions in areas of the country where we've seen some significant house prices fall (despite your inflation you'll note), to date.

In your 20s, nearly paid off first home, looking at second houses, gold offshore vaults.

Good luck to you, whatever you decide. Yes it does sound a bit too good to be true. The Help-To-Buy scheme, along with the push on Shared Ownership from political buffoons though, is a concern to my position, but I can see how you interpret it as supporting yours . Sounds like you can't 'loose' they way you're looking at things.

[19 year mortgage 8itch]

Ok not BTLers, but still property-investors of some sort. Let-To-Buy. Property guru?

Move on with your lives? Nothing against that, but in your 20s and looking at buying 2nd homes, when many on this site view house prices as highly over-valued, is taking it an extra step beyond what many people would justify as ordinary expectations.

I'm fully liquid, with my money in low-interest savings accounts, and have been for years, so yes, lost out on big gains in other investment classes. There may be risks to that, as you suggest, but I'm happy to take my chances. For the time it becomes an advantage to be in money, against other assets falling in value. The type of returns as seen in property market for decades, but for cash. That's my theory and I wouldn't blame you if you thought it dumb, for it has been for a very long time, with some exceptions in areas of the country where we've seen some significant house prices fall (despite your inflation you'll note), to date.

In your 20s, nearly paid off first home, looking at second houses, gold offshore vaults.

Good luck to you, whatever you decide. Yes it does sound a bit too good to be true. The Help-To-Buy scheme, along with the push on Shared Ownership from political buffoons though, is a concern to my position, but I can see how you interpret it as supporting yours . Sounds like you can't 'loose' they way you're looking at things.

V,

Stop teasing, you know full well that renting is dead money and 4hrs a day commuting is merely character building.

[Venger]

V,

Stop teasing, you know full well that renting is dead money and 4hrs a day commuting is merely character building.

It's my own fault for taking their bait. Even when additional posts make the lure more obvious. Big fun to reel us in.

At least the yield link may prove useful, as that's the way I've always viewed how yield should be considered. And the effect perhaps still to play out in many 'sought-after' areas, which have remained at inflated price levels, with world financial markets beginning to get interesting.

It's just seems so easy to scapegoate immigrants for this country's problems when people know so little about how difficult it is to migrate to UK.

I came here as a non-EU 7 years ago, as an exchange student, later got my masters with dinstinction, and found a decent job. The criteria to extend my visa back then was a previous full year's salary of 35k for a person aged under 27 with masters and 40k for a bachelor's. For a person at age 29 the salary threshold is 20k higher.This was the policy before the Tories came in and tightened the immigration rules. I wouldn't have been able to remain in this country if I was born a few months later because the whole visa category was scrapped by the Torries. I now run a small business and last year alone I paid 15k corporation tax to the HMRC let alone income tax. But I still have 3 years to go for indefinite leave application and that makes a total of 10 years.

Not as easy as you would think, is it?

What I'm saying is, with the current legislation, it is impossible for a legal non-EU immigrant to compete for low end jobs. And believe me most will be disgraced to ever be on benefits.

And of course the government is only gonna target non-EU immigration.

I have low budget and need access to public transport (especially to Whitlocks End/Wythall and London) hence considering city centre 2 beds now. Please advise if any other options available.

We saw a repo last week, in a recently built city centre block, for 40% of it's sold price at peak. But strangely the rooms seem smaller than the stated measurements and there's a crack visible from ceiling to floor. Been told it's surface crack and nothing to worry about as still in the 10 year warranty period.

Any thoughts?

[mrtickle]

Sorry will paste into word next time to check before I post, if that annoys you.

Thanks.

That won't help and the over-reliance on computer spell checking instead of teaching people basic English is how we as a society have ended up in this mess. The wrong word you used, "loose", meaning "not tight enough", was correctly spelt. A spell check would not pick that up and you'd be wrong to rely on it. But it was the wrong word and an embarrassing mistake!

[scimus]

Much has happened over one year and I'm now able to look back and reflect on the decisions we made.

Needless to say we bought a house near where I worked.

6 months ago I would have said that buying that house was the worst decision I made in my entire life, because I lost my job, a risk that some of you did point out to me at the time, although the unfortunate incidence was not due to my own failings but the employer cutting the entire project I was due to be placed on and with it 30% of it's workforce.

Although we did have savings to last us 5 years at least, the psychological burden of having two mortgages was very much unexpected and the lesson well learned.

Eventually we moved to a new city and found jobs close to each other (I didn't mention previously that my husband wasn't actually working but studying on a full scholarship, so I was expecting him to then graduate and earn an additional set of income for us). Both houses owned by us are rented out now. We've saved a bit over the last 6 month hence are now in pretty much the same position as last year in terms of paying off the first mortgage - albeit now having a 2nd mortgage (with 30% equity) to worry about. The latter one has got fixed interest lasting another 2 years so shouldn't cause us any trouble in the meantime.

We're renting at the moment but this time not in a hurry to buy again. The plan is to sell one and keep one and wait with patience for another 2008. We survived because we were far from being tied up by the mortgage despite having 2. Most people in our situation would have overstretched themselves with bigger mortgages.

Another lesson I've learned is that jobs aren't reliable, hence my husband and I are keen to learn new skills and plan to open our own businesses. He's also looking into equity investment and trading so that we'll have a more balanced portfolio.

This forum has been very helpful and I hope to make more contributions in the future.