To Buy Or Not To Buy - Advice Please!

[claire]

Hiya!

Im currently live just outside Rochester in Kent, renting for a very minimal amount (£300 a month) off my parents who live in the same road. Work is a half hour drive away.

So its a nice set up but Im coming up for 24 and Im getting that feeling I should be getting onto the property ladder. A few of my friends have and I was thinking if they have done the right thing or not.

They are teachers, so have had quite a few incentives thrown their way.

Based on my salary, I could get a normal mortgage (ie 3.5 times salary) for £112,000 and I have £15,000 in deposit. Therefore looking at properties for £130,000 in Rochester, there are quite a few 2 or 3 bed victorian terraces. Now these are generally flying off the market within days if they are already done up.

I know there are some auction bargains to be had as well.

Now what do you think I should do. In my situation, would it be ideal to buy or should I hold out with my minimal rent and continue saving in the hope of a crash? I hate hoping for a crash though because that would be awful for friends and family.

[Without_a_Paddle]

Hiya!

Im currently live just outside Rochester in Kent, renting for a very minimal amount (£300 a month) off my parents who live in the same road. Work is a half hour drive away.

So its a nice set up but Im coming up for 24 and Im getting that feeling I should be getting onto the property ladder. A few of my friends have and I was thinking if they have done the right thing or not.

They are teachers, so have had quite a few incentives thrown their way.

Based on my salary, I could get a normal mortgage (ie 3.5 times salary) for £112,000 and I have £15,000 in deposit. Therefore looking at properties for £130,000 in Rochester, there are quite a few 2 or 3 bed victorian terraces. Now these are generally flying off the market within days if they are already done up.

I know there are some auction bargains to be had as well.

Now what do you think I should do. In my situation, would it be ideal to buy or should I hold out with my minimal rent and continue saving in the hope of a crash? I hate hoping for a crash though because that would be awful for friends and family.

Buy the victorian terrace and sublet out your old place at a profit and don't tell your parents...

[claire]

Buy the victorian terrace and sublet out your old place at a profit and don't tell your parents...

lol nice idea.....but I think they might notice when they do their regular Sunday morning "Have you got any tea bags Claire?" knock on the door!

[brassfarthing]

I hate hoping for a crash though because that would be awful for friends and family.

How nice to hear someone say that after all the malice on here.

Other people, particularly the bears on here, will tell you differently, but I think you should buy now if you can afford it. By that I mean that I wouldn't take out a 100% mortgage (which you wouldn't be doing by the sound of it), and I wouldn't take out an interest-only mortgage. If you can get a fixed rate repayment for a reasonable term (say 3 years +) you'll be insulated against the interest rate rises that some people think are inevitable.

The key thing for me is this: if you plan to live in the house then go for it. I wouldn't BTL, and I wouldn't think of a house as primarily an investment. As it happens, if you're hoping to make money the good news is that you WILL, but the bad news is that it might not be for a while. Prices will go down at some point because they always do, but they will rise again because they always do. So if you're in it for the long term, then personally I'd go ahead. But thoughts about investment shouldn't be the main reason for buying. What I like about buying is that the place becomes yours and you can shape it into something that reflects you, rather than living with someone else's furniture and decoration.

That said, do keep a close eye on prices. If it's obvious that they are drifting downwards you might want to wait a bit but personally I don't expect there to be a full-blown crash like a lot of people here will tell you is inevitable. They've been saying that for a long time now, during which time prices have risen significantly.

Edited June 17, 2006 by brassfarthing

[claire]

Thanks so much Brassfarthing.....It would be for the long term as somewhere to live. Obviously I cant comment on future husbands, children etc as they are the last thing on my mind at the moment, but like you said, I would like somewhere of my own instead of tip toeing about in my parents house. For example, I recently had to repaint but felt obliged to ask my parents first about what colour I should have.

It was little things like these and watching my friends buy houses that instigated the idea.

Like I said though, they had incentives like a £50,000 interest free loan and 4 x mortgages etc but I wouldn't want to get too loaned up. Also one friend bought her house in October of last year for £119,000 and now the majority in her road are priced at £125,000-130,000 so I was thinking that maybe prices may continue to rise here with the new high speed rail link to London coming in.

Thanks again Brass farthing, I think buying might be ok especially as I am in it for me and not for investment!

[Realistbear]

Some good news from the ODPM. Most of Kent is headed down in the last Quarter and Estate Agents are reporting little or no business in your area. I used to live in Kent and am familiar with Rochester and it seems, sadly, that it will be the first to suffer as the correction progresses. The more prosperous areas of Tunbridge Wells and Sevenoaks are dropping more but that is due to the higher levels of inflation they have suffered over the past 6 years or so.

Here are the figures:

Tunbridge Wells £217,084 -1.2%

Sevenoaks £192,953 -4.9%

Tonbridge And Malling £175,516 -4.6%

Canterbury £174,871 4.9%

Dartford £172,794 -0.1%

Maidstone £162,724 -1.5%

Gravesham £154,139 0% -1.1%

Thanet £152,714 4.8%

Shepway £151,881 4.8%

Ashford £146,806 -3.2%

Dover £143,210 3.2%

Swale £137,153 0.9%

Medway £133,704 -2.8%

http://news.bbc.co.uk/1/shared/spl/hi/in_d.../county47.stm?t

And don't forget what the BoE boss said, things are going to get bumpier for the economy as we move ahead. Unemployment is picking up and Kent relies heavily on manufacturing and retail which is getting hit the hardest. Interest Rates are moving up and even Gordon admits that he will have to give orders to the BoE to begin hiking very soon.

So, its all good news so hang in like most FTBs are doing and WAIT! Buying near or at the top is a guaranteed way of losing money. I remember in the Great Crash of 89-96 that houses in Kent dropped by up to 50% in the Medway area with many owners dropping their keys off at the building society.

Edited June 17, 2006 by Realistbear

[claire]

Some good news from the ODPM. Most of Kent is headed down in the last Quarter and Estate Agents are reporting litle or no business in your area. I used to live in Kent and am familiar with Rochester and it seems, sadly, that it will be the first to suffer as the correction progresses. The more propserous areas of Tunbridge Wells and Sevenoaks are dropping more but that is due to the higher levels of inflation they have suffered over the past 6 years or so.

Here are the figures:

Tunbridge Wells £217,084 -1.2%

Sevenoaks £192,953 -4.9%

Tonbridge And Malling £175,516 -4.6%

Canterbury £174,871 4.9%

Dartford £172,794 -0.1%

Maidstone £162,724 -1.5%

Gravesham £154,139 0% -1.1%

Thanet £152,714 4.8%

Shepway £151,881 4.8%

Ashford £146,806 -3.2%

Dover £143,210 3.2%

Swale £137,153 0.9%

Medway £133,704 -2.8%

And don't foget what the BoE boss said, things are going to get bumnpier for the economy as we move ahead. Unemployment is picking up and Kent relies heavily on manufacturing and retail which is getting hit the hardest. Interest Rates are moving up and even Gordon admis that he will have to give orders to the BoE to begin hiking very soon.

So, its all good news so hang in like most FTBs are doing and WAIT! Buying near or at the top is a guarnateed way of losing monecy. I remeber in the Great Crash of 89-96 that houses in Kent dropped by up to 50% in the Medway area with many owners dropping their keys off at the building society.

I remember that too albeit I was very young and I remember my parents talking about it.

That said though if things are heading towards a crash, will it be a crash on par with the one in the 90's or less of one? If I were to get something for less then £105,000 at auction for instance would that be worth it? And will something like the new high speed rail link to London have a positive effect on Medway?

Thank you!

[brassfarthing]

Thanks so much Brassfarthing.....It would be for the long term as somewhere to live. Obviously I cant comment on future husbands, children etc as they are the last thing on my mind at the moment, but like you said, I would like somewhere of my own instead of tip toeing about in my parents house. For example, I recently had to repaint but felt obliged to ask my parents first about what colour I should have.

It was little things like these and watching my friends buy houses that instigated the idea.

Like I said though, they had incentives like a £50,000 interest free loan and 4 x mortgages etc but I wouldn't want to get too loaned up. Also one friend bought her house in October of last year for £119,000 and now the majority in her road are priced at £125,000-130,000 so I was thinking that maybe prices may continue to rise here with the new high speed rail link to London coming in.

Thanks again Brass farthing, I think buying might be ok especially as I am in it for me and not for investment!

Listen to other people as well claire, I can only tell you my personal views. I may have said something different if you were talking about £250K+ but the sort of prices you're talking about don't seem too outrageous at all compared with some places.

Best of luck, whatever you decide.

[Realistbear]

I remember that too albeit I was very young and I remember my parents talking about it.

That said though if things are heading towards a crash, will it be a crash on par with the one in the 90's or less of one? If I were to get something for less then £105,000 at auction for instance would that be worth it? And will something like the new high speed rail link to London have a positive effect on Medway?

Thank you!

My advice is to stay renting as everything points toward another correction in the housing market. Even the estate agents admit affordability is a problem and higher IR will have a dampening effect on what little life is left in the market. If the Bear market continues over the summer for the stockmarkets the brokerage houses will start to layoff thousands of city workers which will impact London property just as it did after the 1987 crash--although the full effects took about 17 months to hit houses.

If you look at the Land Registry figures they are almost all negative which should tell you something about the market--it's headed down. By how much? Anyone's guess but many believe it will drop more than in the Great Crash of 1989 as affordability is much worse and people are more indebted than at that time. Further, there are many more interest only loans out there which makes it easier for people to decide to wlak away from their properties as soon as negative equity is realised. As there are so many negative figures in the ODPM's stats there are already a lot of negative equity situations which accounts for the rise in auctioned properties recently.

The best case scenario for the crash is a drop of 50%. The more likley scenario is around 30%. If it is a mild drop perhaps 20%. My bet is on 30-40% down from the top which came in mid-2005. Areas most dependent on manufaturing and retail will do much worse--my area is West Midlands and job losses have been huge hence the drop of 8.2% where I live. That is 8.2% in one quarter!

[brassfarthing]

.... if things are heading towards a crash, will it be a crash on par with the one in the 90's or less of one?...

No one knows if there will be a dip, a correction, a crash, or nothing at all. The bears on here have a vested interest in talking down the market, so bear that in mind when they tell you that you're being foolish. I stand by what I said in my original post.

[Dr Doom]

At least wait until after the August MPC decision (or July quite possibly).

Each quarter point interest rate rise will effectively be many thousands of pounds you will save

on the purchase price.

And the market will likely overcompensate downwards.

Just wait a bit longer.

[brassfarthing]

The best case scenario for the crash is a drop of 50%. The more likley scenario is around 30%. If it is a mild drop perhaps 20%. My bet is on 30-40% down from the top which came in mid-2005.

Absolute tosh.

Sometimes you sound like you actually believe your own propaganda (polite word for it).

Nobody knows what will happen, least of all you, given the evidence of your daily stock market bulletins.

[backtoparents]

Suggest you do some maths, working out additional costs of renting elsewhere, then additional costs of buying, reduction in travel costs, etc, etc.

Beware the poster who comes with smiles, compliments and comforting marketing jargon. Do your sums instead!

btp

[BuyingBear]

If you're happy with the house and can comfortably afford it then buy.

Don't be swayed by some on here who cannot afford to buy and discourage other people for their own selfish reasons.

[laurejon]

Claire

Property had been rising year on year since 1994, and as the interest rates have lowered the prices have risen but not by a corrosponding amount. Therefore affordability has been reduced.

Wages have not gone up significantly over this period of time, but almost everything else has unless you want some cheap plastic tack from China.

So..................there has to be a cutoff point, a point whereby property just becomes too top heavy. Many on this board predicted that top heaviness in 2002, some before that.

My prediction has always been 2007, last quarter, based on the Seven Year Economic Cycle.

Interest rates are very very low today, the notion that if you were to buy using a 3yr fix is very poor advice.

A crash, if it happened next year, would take much longer than three years to turn around, more like 7years.

You are 24yrs of age, single, or at least without a serious partner in your life, that is one you would buy with.

Take this on board, then make your descision.

You would if you bought today be buying on the absolute peak of a huge mountain when looking at prices, you would be buying in a time our history whereby for the first time in history the ratio of average earnings to house prices is 9 times earning, formerly it was 3.5 times earnings.

Why dont you just chill out, enjoy your youth a little, and keep saving. I wish I was your age again, you just dont want to be saddled with what could be a potential millstone around your neck, if prices tank then whilst your mates are out enjoying themselves, you will be indoors struggling to maintain a property and keep your head above water. If the market crashed, you would be old before your time.

Go enjoy yourself, travel the world, broaden your mind, meet friends that will be with you for your life, and then when the time is right, get onto the market at the right price, at the right time.

Whatever you buy today, you will for sure be able to buy for around 30% less at some stage in the future.

[othello]

I hate hoping for a crash though because that would be awful for friends and family.

Why would it be awful for them?

The bears on here have a vested interest in talking down the market, so bear that in mind when they tell you that you're being foolish. I stand by what I said in my original post.

You're right, but the banks, building societies, surveyers, lawyers, media, BTL investers ans all thouse who make money out of the property market have a vested interest in talking the market up and they are in the majority.

[Guest The_Oldie]

Don't be swayed by some on here who cannot afford to buy and discourage other people for their own selfish reasons.

There are a number of members, myself included, who have 100% cash in the bank but would not dream of buying at this point in the property price cycle .

[Realistbear]

Absolute tosh.

Sometimes you sound like you actually believe your own propaganda (polite word for it).

Nobody knows what will happen, least of all you, given the evidence of your daily stock market bulletins.

Some areas dropped by almost 5-10% last Quarter alone. So 30% is not an unreasonable assumption.

http://news.bbc.co.uk/1/shared/spl/hi/in_d...tml/region1.stm

Northumberland £149,225 -8.8%

Cumbria £143,851 -1.6%

Tyne And Wear £132,526 -0.3%

Stockton-On-Tees £128,643 -5.0% -

Darlington £125,556 -5.6%

Durham £114,329 -4.3%

Redcar And Cleveland £109,289 -11.2%

Middlesbrough £108,982 4.7%

Hartlepool £98,770 -5.2%

Herefordshire £289,910 -0.9%

Warwickshire £287,775 -5.8%

Worcestershire £280,997 -1.1% -

West Midlands £269,526 1.8%

Shropshire £255,674 -4.9%

Staffordshire £244,820 -1.9%

Wrekin £213,857 2.7%

Stoke-On-Trent £165,187 -0.1%

Bath And North East Somerset £364,655 -11.8%

Dorset £308,653 1.3%

Gloucestershire £308,564 -0.2%

Wiltshire £305,271 -1.9% 86

Devon £301,615 0.9% -0.5%

Bournemouth £292,999 9.2%

Somerset £280,239 0.2% -0.9% 588

Torbay £274,923 -2.8%

Cornwall £272,182 -3.8%

North Somerset £271,585 -4.5%

South Gloucestershire £262,698 -2.5%

These are a good cross section of ODPM figures and you can see that some areas are tanking. Denial is bound to be present as a market crashes because it is a traumatic event in many people's lives. The Great Crash was devastating in terms of the social cost quite apart from the financial disasters that were left in its terrible wake.

Edited June 17, 2006 by Realistbear

[brassfarthing]

These are a good cross section of ODPM figures and you can see that some areas are tanking. Denial is bound to be present as a market crashes because it is a traumatic event in many people's lives. The Great Crash was devastating in terms of the social cost quite apart from the financial disasters that were left in its terrible wake.

No, they are not "a good cross section" at all. They are a mixture of property types, carefuly chosen from the worst-performing areas to bolster your argument that the world is collapsing round our ears.

If you'd chosen the SE counties table (and remember that the OP lives in the SE) you'd have found that more than half the entries showed an INCREASE in the last quarter.

However, unlike you and your crash, I don't take that as proof that we're in a surging market. Neither is true. Some areas are rising, some are falling. It has been like that for a long time.

And you have the gall to talk about "denial".

I'll say it again: I'm not a bull who thinks that the market can only go upwards. History tells us that the market fluctuates, and it will continue to do so. There is a very strong possibility that the market will dip, and yep, there's even the possibility that we'll have an all-out crash. But it's just not sensible to opine as you do, as if you have a crystal ball that's denied the rest of us.

There's only one certainty in this (IMHO) which is that people who are looking to buy a house for the long term rather than as a short term windfall-investment, have little to fear. You particularly have little to fear if you can insulate yourself by avoiding IO mortgages, 100% mortgages and getting a decent fixed term. At least 3 years, but longer if you can afford it. In the long term you will win.

It's swings and roundabouts. Building your own living environment is actually quite a pleasant and rewarding experience, and unless you've leveraged yourself financially to some stupid degree (and the OP doesn't seem to be doing that) then once you start owning your home you soon realise that what goes on outside is largely irrelevant. You just get on with it, and wonder why you didn't do it years before.

Edited June 17, 2006 by brassfarthing

[othello]

There's only one certainty in this (IMHO) which is that people who are looking to buy a house for the long term rather than as a short term windfall-investment, have little to fear. You particularly have little to fear if you can insulate yourself by avoiding IO mortgages, 100% mortgages and getting a decent fixed term. At least 3 years, but longer if you can afford it. In the long term you will win.

You just get on with it, and wonder why you didn't do it years before.

Why buy now, lining somebody else's pockets by taking on a massive debt, if you can buy cheaper in the future? Nobody can predict what will happen, but the figures are there for all to see. Apart from greater London and NI prices fell in ALL regions last quarter (Land REgistry figures). I wouldn't advise any FTB to jump now.

[Charlie Don't Surf]

Buy high, sell low - I think that's the saying!

[brassfarthing]

Why buy now, lining somebody else's pockets by taking on a massive debt, if you can buy cheaper in the future? Nobody can predict what will happen, but the figures are there for all to see. Apart from greater London and NI prices fell in ALL regions last quarter (Land REgistry figures). I wouldn't advise any FTB to jump now.

Emotive stuff -- "lining somebody else's pockets" and "massive debt".

It was because I didn't think the OP was contemplating a massive debt that I made the points I did. If a FTB was suggesting a £200-£250K purchase I might have advised differently.

Renters line other people's pockets (LLs) more deeply than when they're buying their own place (even if it's your parents).

Terraced houses in Kent, according to the link provided earlier, were 0% changed over the last quarter, and increased 3.4% over the last year. In other words, pretty stable. They may go down, they may go up again. But remember that if you spend another year or two renting to avoid lining someone's pockets, that's a year or two of payments that could be chipping away at a mortgage.

[laurejon]

When the market tanks, along with thousands of jobs each week, then this time round I will leave the UK and work overseas until the market is worth buying back into.

If you buy now, you will be stuck here, living in hope that you can keep your job, and hoping that if you do lose your job you will find one before you get repossed.

The simple fact is, why make your life hard, the horse has bolted, the money has been made, its gonna be downhill very shortly.

If the market does not tank, then what...........?. Prices remain at 9 X average Earnings?.

I dont think so.

Buyers have thus far managed to hold on in the last few years by extracting equity to subsidise the payments they cannot make, what when prices dont rise, mortgage rates go up,,,,,,,,,,,,,,,,?.

[Dr Doom]

It was because I didn't think the OP was contemplating a massive debt that I made the points I did. If a FTB was suggesting a £200-£250K purchase I might have advised differently.

Renters line other people's pockets (LLs) more deeply than when they're buying their own place (even if it's your parents).

Terraced houses in Kent, according to the link provided earlier, were 0% changed over the last quarter, and increased 3.4% over the last year. In other words, pretty stable. They may go down, they may go up again. But remember that if you spend another year or two renting to avoid lining someone's pockets, that's a year or two of payments that could be chipping away at a mortgage.

When you buy you are immediately lining, surveyors, solicitors, and the inland revenues pockets.

Your argument about, "renters line other people's pockets" has been proven fallacious many times on here before.

Sure the OP mentioned she was planning to buy using a repayment mortgage, but it would only take a few pips interest rate increases to wipe the repayment portion, and her deposit, out. And simultaneously she would have to worry about the reduction in the property value plunging her into negative equity. Which is a really terrible situation to be in, psychologically.

[brassfarthing]

When you buy you are immediately lining, surveyors, solicitors, and the inland revenues pockets.

Your argument about, "renters line other people's pockets" has been proven fallacious many times on here before.

Sure the OP mentioned she was planning to buy using a repayment mortgage, but it would only take a few pips interest rate increases to wipe the repayment portion, and her deposit, out. And simultaneously she would have to worry about the reduction in the property value plunging her into negative equity. Which is a really terrible situation to be in, psychologically.

And if she buys into the Armageddon vision that so many of you love to describe (scrabbling to leave the country before the riots start, all that stuff) then she'll do, for her, the sensible thing, and not buy.

I've said all that I can say on this. People simply have to decide for themselves whether there'll be a dip or a crash, and whether they are sufficiently protected against the realistic worst-case scenario. For instance, you can get 10 year fixed rate repayment mortgages easily enough these days.

There are cautious buyers and stupid buyers. I do not advocate, and never have advocated, being a stupid buyer. If you're cautious, then you can ride out any dip in the market the way we always do. If you're a short-termist, DO NOT BUY. If you're simply a BTL investor DO NOT BUY.