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wherebee

Buying Time - Or Not?

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So, some of you will recall that we've been saving like billy-o with a plan to buy somewhere mortgage free in Australia, NZ, or at a pinch the UK. Obviously not in the big cities of London, Sydney, or central Auckland as you'd need a cool million dollars/750kGBP to even get started which is MENTAL.

Anyway, after years finally got in the position of being able to buy somewhere 400-500k (AUD/NZD) or 200kGBP with no mortgage, moving and taxes included. That means a smaller town somewhere outside the big NZ/AU cities, or in the UK heading up north (not ideal on climate grounds). My skills means that location is not such a problem as there is work in most locations, albeit not big city wages. On that budget we can get a 3-4 bedroom house with some land for veg, etc.

So - question is do we look to take the plunge in 2014, get somewhere decent and hunker down to wait for the global financial crash Phase II (which I do believe is coming at some point), or hold onto the cash and continue to save like buggers to be able to salt some more away. All comments welcome.

By the way, thanks again Brown/Osborne/Rudd/Bernake for screwing up the housing market and economy in every country I want to live in long term, that means I have to make (gamble) on one purchase over a 20 year cycle to avoid paying mental stamp duty/borrowing costs as the base has gone up so much. Also, as the crash that is coming will, I think, result in at least some bail ins/depositor losses, having a bit of land is kind of forced on us instead of renting for ever.

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Depends very much on what income you will need to generate. IMO moving to another Anglo Saxon country with Anglo Saxon mindsets and media will make living a lifestyle very different from the UK consumer merry go round difficult. From my own experience, Aus and NZ are not too different from the UK in that respect.

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If you can work from home, Ireland is a good bet.

I did think about Ireland, but with a bit of an english accent still left, when the troubles flare up again I am not sure how welcome I'll be....

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See my "Last chance to buy" thread.

Only the greatest of the greater fools would buy now.

When even the halfwits, hayseeds and simpletons at the OECD are warning the world about the Osborne/Carney bubble then only the greatest fool would be buying now.

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When even the halfwits, hayseeds and simpletons at the OECD are warning the world about the Osborne/Carney bubble then only the greatest fool would be buying now.

I agree - but what about the risk of losing most/all of my savings to a bail in?

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Have you lived in a smaller Aus or NZ town as yet and are you sure about being able to get a job there?

My friends who have emigrated are finding that in Australia in particular, your English accent isn't welcome and you could be the first to be made redundant when chops occur. I've had a couple of friends who were headhunted into Australia a few years ago made jobless with no warning and unable to even get an interview for a new job. There does seem to be a callousness towards UK emigrants now, even those who have been in the country for years.

Not sure about NZ, but friends say that many are returning there from Australia and finding their job options limited.

Edited by Flopsy

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I did think about Ireland, but with a bit of an english accent still left, when the troubles flare up again I am not sure how welcome I'll be....

Almost no-one anywhere in Ireland (especially on the RoI side of the border) is going to give a toss about your accent. Any residual animosity that exists is towards the state, not individual English people.

As a bonus, outside of prime Dublin areas, houses are pretty affordable North and South. Even ludicrously cheap if you fancy living in the middle of nowhere in the RoI, plenty of excess housing stock put up during the boom years in the most unlikely places.

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I agree - but what about the risk of losing most/all of my savings to a bail in?

We've had a soft (hard to stomach) bail-in from savers, for years now, via low interest rates and QE, for the debtors/equity rich VI, have we not?

The big cities you say are mental prices, does that really mean the suburbs you're looking at are particularly good value? I get the impression crashmonitor thinks the North UK well cheap, but looks massively overvalued to me, with just a few pockets of possible value for apartments. I'm full in for the crash, for better or worse, and there's few people at HPC holding many many years savings beyond the purchase price of the place you've linked up to. They've already been ruined during Labour's boom without bust, and not buying in at QE reflated new peaks.

Could be old listings, but no.34 on the very same road as your link, appears to be up for sale. Investor bailing? "Look at the value here - a 3 bedroom home with carport which is currently tenanted plus a large shed/workshop."
No.22 appears to be up for sale too, asking $319,000.
No.6... the camp/park/guest-stay place for sale too? http://www.nz.open2view.com/properties/300236

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I agree - but what about the risk of losing most/all of my savings to a bail in?

If the banks go breasts skywards again house prices will come down at the same time. You are looking at the same risk with either route. Without knowing your circumstances it is difficult to say what is a good idea but I would look at other investments rather than keeping fiat in a bank. In fact anything is better than keeping fiat in a bank.

I bought a small company with the house sale money from when we sold out in 2007. This makes me a living and pays the rent on a property worth slightly more than the house we sold. Houses are for losers.

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Now isn't a good time to buy. But tomorrow won't be much better.

House prices are way too high in most of the UK, but with ultra low interest rates set to continue for many more years there's no reason why prices won't stay high for many years to come.

The only exceptions are areas like the North East where some isolated pockets of sanity exist. Although there's a good argument that says even there prices may drift down further so you could still be better off waiting.

Unless you really want to own a property for non financial reasons, and can afford to buy outright, then the rational thing is to reconcile yourself to a lifetime of renting and structure your personal affairs accordingly.

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We've had a soft (hard to stomach) bail-in from savers, for years now, via low interest rates and QE, for the debtors/equity rich VI, have we not?

The big cities you say are mental prices, does that really mean the suburbs you're looking at are particularly good value? I get the impression crashmonitor thinks the North UK well cheap, but looks massively overvalued to me, with just a few pockets of possible value for apartments. I'm full in for the crash, for better or worse, and there's few people at HPC holding many many years savings beyond the purchase price of the place you've linked up to. They've already been ruined during Labour's boom without bust, and not buying in at QE reflated new peaks.

Could be old listings, but no.34 on the very same road as your link, appears to be up for sale. Investor bailing? "Look at the value here - a 3 bedroom home with carport which is currently tenanted plus a large shed/workshop."

No.22 appears to be up for sale too, asking $319,000.

No.6... the camp/park/guest-stay place for sale too? http://www.nz.open2view.com/properties/300236

The North is more overvalued than London, look at rent to mortgage interest, yeilds are 1-2% over most of the north, in the SW yields are about 5% in places.

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I agree - but what about the risk of losing most/all of my savings to a bail in?

We've had our bail in....what do you think has been happening for the last 5 year...devious back handed back door bail in of savers and them stupid enough to gift their savings to the bankers in the form of a deposit on a vastly over-prices 2nd house.

Next up....reposses, sell off, profit.

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The North is more overvalued than London, look at rent to mortgage interest, yeilds are 1-2% over most of the north, in the SW yields are about 5% in places.

Great time to be a renter then.

Why buy when some other idiots is funding your rent and allowing you to save/invest faster/better.

Buying is dead money and heavy weight round many peoples necks.

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Now isn't a good time to buy. But tomorrow won't be much better.

House prices are way too high in most of the UK, but with ultra low interest rates set to continue for many more years there's no reason why prices won't stay high for many years to come.

Lack of willing or procedable (post MMR) buyers? There's so many reasons, some at HPC has become weaker than ever, unless you really believe that Silver Surfer. As some fables I read at the weekend were warning, "If you follow the advice of your enemy, you will get hurt."

Cowie in the Sunday Times even theorising about 'in the unlikely event of a 75% house price crash' - that's something new - still being a win for most boomers (effectively 25 years of free rent).

MMR just in, and one ex-BoE guy suggesting further tightening June onwards. US tapering down. EU challenged still with low inflation, if not deliberately underplaying deflation.

HTB rates already ticked up, and some suggestions other rates having more life of their own, against new market conditions. Including FLS mortgage money scheme no longer feeding through. Some reports suggesting recent times has satisfied much pent up demand (at the higher prices), leaving fewer willing/able buyers remaining. Gov/banks actually perhaps wanting a crash at some point, to get younger fresh debt on so many homes owned by outright or high equity older owners.

Today:

Sylvia Waycot, editor of Moneyfacts.co.uk, said: “It is a very different mortgage market to four months ago when the government withdrew its controversial FLS, thereby cutting access to cheap money.
“Banks are facing scrutiny over balance sheets via stress tests and capital holding requirements, plus there are increased costs of regulation and processes such as MMR.
“Don’t make the mistake of thinking that we need a change to base rate to increase the cost of mortgages, as prices are creeping upwards now. So if fixed rates are your preference, now is the time to fix.”

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Lack of willing or procedable (post MMR) buyers? There's so many reasons, some at HPC has become weaker than ever, unless you really believe that Silver Surfer. As some fables I read at the weekend were warning, "If you follow the advice of your enemy, you will get hurt."

Cowie in the Sunday Times even theorising about 'in the unlikely event of a 75% house price crash' - that's something new - still being a win for most boomers (effectively 25 years of free rent).

MMR just in, and one ex-BoE guy suggesting further tightening June onwards. US tapering down. EU challenged still with low inflation, if not deliberately underplaying deflation.

HTB rates already ticked up, and some suggestions other rates having more life of their own, against new market conditions. Including FLS mortgage money scheme no longer feeding through. Some reports suggesting recent times has satisfied much pent up demand (at the higher prices), leaving fewer willing/able buyers remaining. Gov/banks actually perhaps wanting a crash at some point, to get younger fresh debt on so many homes owned by outright or high equity older owners.

OK, so there are going to be fewer buyers, with less to spend, and a shed load of scared sellers - doesn't this make it a buyer's market? If you can haggle off 30% now, do you really care that there's a crash of unknown magnitude coming in an unknown time frame?

I simply cannot imagine my deposit fund surviving the consequences of a 75% HPC - the banks will move to direct theft rather than slow death by ZIRP as all us 'fat cats' with savings will get 'bailed-in' to save the banks.

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OK, so there are going to be fewer buyers, with less to spend, and a shed load of scared sellers - doesn't this make it a buyer's market? If you can haggle off 30% now, do you really care that there's a crash of unknown magnitude coming in an unknown time frame?

I simply cannot imagine my deposit fund surviving the consequences of a 75% HPC - the banks will move to direct theft rather than slow death by ZIRP as all us 'fat cats' with savings will get 'bailed-in' to save the banks.

This is exactly my fear. The savers will get massacred in theft (see Poland/Cyprus/etc) as the governments take the gloves off and declare 'we are all in in together'.

My great grandfather lost all his savings in the bank collapses in the 20's, and ended up in an asylum and his wife, my gran and her siblings were made destutite. I see the same thing as a real risk, and hence my dilemma about buying now even though I agree the bubble is topping.

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OK, so there are going to be fewer buyers, with less to spend, and a shed load of scared sellers - doesn't this make it a buyer's market? If you can haggle off 30% now, do you really care that there's a crash of unknown magnitude coming in an unknown time frame?

I simply cannot imagine my deposit fund surviving the consequences of a 75% HPC - the banks will move to direct theft rather than slow death by ZIRP as all us 'fat cats' with savings will get 'bailed-in' to save the banks.

No. -30% is not good enough. I'm all in, and want some value. So are the rest of family (brothers/sister), and many of their professional friends in their 30s.

It wasn't all bad in US Great Depression or UK milder GD, and if it is a bail-in/money-steal, then at least I played an honest hand throughout (saving during the main reckless HPI boom, and in the QE unfairness. Although we need people to set lower prices, to buy at -10% and lower, to actually bring down prices.

"Death is -30% is too good for them. they must suffer as I suffered. See their world ripped from them as it was ripped from me."

-'Count of Monte Cristo' by Alexandre Dumas

Of course they could find alternative ways to keep prices high, such as US investment companies moving in, paying high prices to support everything from below, almost world-wide.

Edited by Venger

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The North is more overvalued than London, look at rent to mortgage interest, yeilds are 1-2% over most of the north, in the SW yields are about 5% in places.

Interesting point-of-view.

Been mulling it over last few days.

I think crashmonitor mostly sees value in areas that are really in severe decline, where there is less appeal to live there now than there was before - his prices from 2000 to today. Or in areas not easily commutable from.

All I know is in many pockets of the North-West, prices are extreme. And I don't see any value in most other areas, from Rochdale to Stockport, throughout much of Cheshire.

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All I know is in many pockets of the North-West, prices are extreme. And I don't see any value in most other areas, from Rochdale to Stockport, throughout much of Cheshire.

What is your actual measure of value? How will you know when things are cheap enough for you?

I don't have a more scientific method than comparing prices per square metre in areas I'd like to live in - IIRC rebuild costs are in the order of £1200/m^2 so I'd guess that puts a floor on my expectations. I guess though with a full on depression, construction costs would fall...

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What is your actual measure of value? How will you know when things are cheap enough for you?

I don't have a more scientific method than comparing prices per square metre in areas I'd like to live in - IIRC rebuild costs are in the order of £1200/m^2 so I'd guess that puts a floor on my expectations. I guess though with a full on depression, construction costs would fall...

How will I know? When the sellers of houses begin searching me out, would be a good beginning. Rather than others currently still searching out a little bit of value, trying to dance and persuade owners/sellers.

Other than that, against income-to-job-security, and vs my existing savings which I'm protective of. No real formula; I work in the creative sector, and struggle with science, but admire some of the hard-maths and science PhDs priced out on hpc, high-end IT guys, top-business people.... and have relied on their calculations and views in previous posts.

Yes, construction costs would fall. We all have different ways to assess it I suppose?

Well, based on the loan value for standard SVR mortgage I've just looked at on my Banks website, you would actually be looking at £400k interest on a £400k loan over the next 25 years (that's if interest rates stay as low as they currently are - which I don't think anyone believes will happen.)

Now, look at some of the daft £450k terraced houses in Hale we've been discussing on the Hale & Alty thread. I can easily see those dropping by at least 10-20% in value over the next 5 years; maybe much more. But even at just over a 10% fall and no rises in interest rates, that's your £50k deposit gone (plus the loss of the interest it could have earned in an ISA/etc..) And in the first 5 years of mortgage payments, at £2.6-2.7k per month? Well, you've only paid off £26k of your house. But remember the interest on the loan? That's cost you another £121k in just the first 5 years. So, after 5 years, you are ~£180k down on a £450k house - if interest rates don't go up at all and your house only drops in value by about 12%. The reality is likely to be something much more severe, IMHO - a 30% fall in prices and interest rates at just 2% higher than today gives a loss of over £300k on a £450k house in just five years. And what have you got for that £180k-£300k of investment? Just £26k worth of equity in a house (and minus all your other costs for 5 years - moving costs, stamp duty, maintenance, etc., you don't even have that!)

So that, to me at least, is what is so frightening about buying in the current market. Not a single young person under the age of 35 I speak to can afford to buy at current prices. And for those that do, the doubling and trebling of houses prices needed to wipe out the enormous amount of interest they'd paid in the first 5-10 years of ownership is just not going to happen. Scary stuff indeed.

Hence why I rent cheaply and push cash onto the "buy-outright when prices fall-back" fund. smile.gif

I stick to the Lionel Ritchie rule, the once, twice, three times a lady rule. Its a rule of thumb rather thn an article of faith so you'll have to excuse the broad generalisation.

Borrow £10,000 (once) results in a typical repayment of £20,000 (twice) which for a typical basic rate taxpayer means earning £30,000 (three times). Or, to put it in plainer terms, an additional £10,000 offered is equivalent to a years work at average salary and even better offer £10,000 less and you could retire a year earlier. Instead we fixate on lending multiples at gross earnings which neglects tax and interest.

My simple rent vs buy equation...

Rent = x pcm

Savings interest = y pcm

A mortgage where the interest = x-y means I'm paying out the same each month. Of course there are other factors such as buildings insurance, maintenance etc, but mortgage interest is the main deal for most people.

Our 'buy scenario' is fairly conservative I expect. When we find a house we're happy with and at a price we're willing to pay, I'll be looking at putting down 50-70% cash, the remainder on a 10yr mortgage (so you don't get quite the same level of pain in front-loaded interest). We have also always planned to keep ~3yrs living expenses (inc rent/mortgage) back from the deposit. I may even be tempted by a long-term fix (e.g. 5yrs at ~3.7%) depending how uber-conservative I'm feeling.

My point is that everyone's situation is different. Their savings (& therefore the risk of lower income/higher outgoings) are different; LTV is different; earnings multiple is different; choice of mortgage product is different.

Edited by Venger

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