Confused Ftb

[RosscoPK]

Hello Everyone,

This is my first post here - apologies if it's in the wrong board.

I've been reading these forums for a few months now and have been keeping a keen eye on the housing market since I'm looking to buy a house (well, actually, I have to buy) with my girlfriend within the next two years.

I am currently saving for at least a 5% deposit at the moment. As a recent graduate I (naturally) have student debts, but so far have managed to save just over 2k - not a huge amount, but you have to start somewhere I guess!

Many of my work colleagues and friends are trying to persuade me to rent instead, but I believe this to be a total waste of money. I'm not interested in one of those Share Schemes and I believe these to be a result of the high house prices, rather than a solution to them.

There seems to be this philosophy of 'buy now while you still can', but with the recent news of the 3.1% inflation and impending IR rate hikes, I feel that buying now or within the next year would be financial suicide. Come August, myself and my partner will (hopefully) be earning roughly 40-45k and are looking to buy a new property (more likely two-bedroom) in Leicester, around the 130-140k mark; neither of us are especially keen to get anything more than a 3x - 3.5x mortgage.

Is it worth buying now or best to wait as long as I possibly can? While 130k is not going to be out of our range by any means, if an identical house were to go up by another 10k+ over the next year or two, well - that'd be a bit of a pain in the backside!

It seems that there's been talk of a 'possible' crash for the last two years, but instead the prices have just continued to increase. A work colleague (who owns two houses) thinks that the prices will continue to climb for the forseeable future, but I can't understand how house prices can now just simply keep going up and up and up without this being reflected in average wage earnings.

If they do continue to increase - oh, lord!

Any advice?

[PhoneyMcRingRing]

Many of my work colleagues and friends are trying to persuade me to rent instead, but I believe this to be a total waste of money.

Welcome to the site!

If your rent is less than the price of an interest only morgage on a similar property then renting is a way of SAVING money.

Phoney

[wotnocrash]

Welcome to the site!

If your rent is less than the price of an interest only morgage on a similar property then renting is a way of SAVING money.

Phoney

you are not really saving money if house prices continue to escalate at a quicker rate than you can save though.

An increase of 10k over the next 2 years on that kind of property would work out at about 4% per annum increase, which is quite possible (i.e. no real increase above inflation)

Edited April 19, 2007 by wishfulthinking

[red]

...

It seems that there's been talk of a 'possible' crash for the last two years, but instead the prices have just continued to increase. A work colleague (who owns two houses) thinks that the prices will continue to climb for the forseeable future, but I can't understand how house prices can now just simply keep going up and up and up without this being reflected in average wage earnings.

If they do continue to increase - oh, lord!

Any advice?

Yes. Stop listening to advice from the bloke at work who 'owns' two houses. You might as well be asking a barber if you need a haircut.

Do your own research (this site is full of useful links), gather anecdotals from the area you wish to buy in and keep saving!

[drminky]

you are not really saving money if house prices continue to escalate at a quicker rate than you can save though.

An increase of 10k over the next 2 years on that kind of property would work out at about 4% per annum increase, which is quite possible (i.e. no real increase above inflation)

If you are worried about general inflation or HPI eating away at your deposit, then this becomes and investment question, as opposed to a residential need question.

So before you rush out and buy to avoid 'missing the boat', the question that you must ask yourself is whether a leveraged play on continued HPI is the best way of investing your deposit money for the moment. IE, is residential property the best investment class at the moment? Or do you have more faith in shares, bonds, cash accounts, precious metals, etc etc performing better in the short-medium term than property? Also, you have to consider diversification. Buying a house is a one-way bet, either houses go up or they go down in your area, and once in, they are not easy to get out of, wheras with other investment classes you can chop and change quite easily, and hedge and diversify somewhat...

[Blah]

You've come to the wrong place if you're looking for totally impartial advice!

I'm in a similar situation, but I would guess a few years older. I've been undecided until recently and was considering buying a place at the end of the summer with my girlfriend.

However I'm not going to because it seems we've reached a tipping point with prices. The low interest rates that have supported HPI for a long time seem to be creeping up, and the expectation of future gain is beginning to evaporate. General opinion also seems to be shifting - after all your friends and work colleagues aren't spouting the usual mantra of "buy now before its too late"!

I have had conversations with one builder in the Reading area and an estate agent in the same area who both used the term "slowdown" to me - and thats before the recent inflation figures and subsequent IR Hike headlines. This relates to one specific area I know but it has helped sway me into the bear camp.

Anyway, as a recent graduate who knows what opportunities might come up. Renting makes you very flexible.

[Disillusioned]

it has helped sway me into the bear camp.

Go on... change your status to 'bear'... you know you want to!

[RedMercury]

There seems to be this philosophy of 'buy now while you still can'

Hi RosscoPK

I'm in a similar position. With regards to that philisophy, I think that the tipping point will come when the majority of people can't buy and the market becomes stale. Just hang in there!

[Blah]

Go on... change your status to 'bear'... you know you want to!

Probably being a bit slow today but I can't work out how to!

[Guest Cletus VanDamme]

I've been reading these forums for a few months now and have been keeping a keen eye on the housing market since I'm looking to buy a house (well, actually, I have to buy) with my girlfriend within the next two years.

I am currently saving for at least a 5% deposit at the moment. As a recent graduate I (naturally) have student debts, but so far have managed to save just over 2k - not a huge amount, but you have to start somewhere I guess!

Any advice?

Question:

Why do you have to buy within the next 2 years? I've never heard of a forced buyer before.

You're just out of university. Enjoy life a bit first. Buy somewhere when you're sure you want to settle in an area.

[onrollover]

I am also in the same position as you, though the average 2 bed round me is closer to the national average house price, and so the bubble just that little bit more obvious.

I am going to wait a bit, at the moment. I decided to stay renting, perfectly comfortable where I am (certainly better than any house I could afford) and saving a bit of money. Yes we miss out on any gearing on an "investment" in housing but we also miss out on the risk and potential losses, (if you want to have those sort of risks then just go and bet on HPI on Betfair). I would say regardless of whether houses are going up or down wait till you have at the least a 10% deposit in the bank, I have played about with the figures and its almost a certainty that in the long term you will be better off building up a decent deposit first.

Keep saving, remember even at a pitiful 5% return on investment you will have doubled your money in 15 years with compound interest.

[JumboMills]

you will have doubled your money in 15 years with compound interest.

It's amazing how many people just don't understand the power of compound interest. It is within the realms of possibility for anyone on an average salary to put away enough cash over 10 years to generate enough compound interest to allow you to live rent free / mortgage free forever!

[Guest DissipatedYouthIsValuable]

Hello Everyone,

This is my first post here - apologies if it's in the wrong board.

I've been reading these forums for a few months now and have been keeping a keen eye on the housing market since I'm looking to buy a house (well, actually, I have to buy) with my girlfriend within the next two years.

I am currently saving for at least a 5% deposit at the moment. As a recent graduate I (naturally) have student debts, but so far have managed to save just over 2k - not a huge amount, but you have to start somewhere I guess!

Many of my work colleagues and friends are trying to persuade me to rent instead, but I believe this to be a total waste of money. I'm not interested in one of those Share Schemes and I believe these to be a result of the high house prices, rather than a solution to them.

There seems to be this philosophy of 'buy now while you still can', but with the recent news of the 3.1% inflation and impending IR rate hikes, I feel that buying now or within the next year would be financial suicide. Come August, myself and my partner will (hopefully) be earning roughly 40-45k and are looking to buy a new property (more likely two-bedroom) in Leicester, around the 130-140k mark; neither of us are especially keen to get anything more than a 3x - 3.5x mortgage.

Is it worth buying now or best to wait as long as I possibly can? While 130k is not going to be out of our range by any means, if an identical house were to go up by another 10k+ over the next year or two, well - that'd be a bit of a pain in the backside!

It seems that there's been talk of a 'possible' crash for the last two years, but instead the prices have just continued to increase. A work colleague (who owns two houses) thinks that the prices will continue to climb for the forseeable future, but I can't understand how house prices can now just simply keep going up and up and up without this being reflected in average wage earnings.

If they do continue to increase - oh, lord!

Any advice?

My feelings are similar, either house prices come down or wages go up fairly tremendously, or we'll have the next generation living in caves again.

Being 35 this year on about 68k (gross) but only just reaching the point of being out of debt (travelling and lost weekends in Amsterdam, gadgetry and student loans etc) I'm looking at

mortgage multiples and house prices and it doesn't seem to me to be a good time to buy. I am a GP but not one of Daily Mail earnings ability (at present).

It seems that interest rates will increase because inflation is rising, though the BOE doesn't want to precipitate a squeeze on the indebted in case there

are too many defaulted mortgages which would probably cause a big mess.

The pound is very high against the dollar which means we're probably going to be exporting less than before (which would seem to be not much in the first place)

So, it would seem that printing more money, increasing wages and trying to hide the true cost of general inflation whilst gently raising interest rates would be used

to sort out the problems.

I don't (yet) have the sort of money to be playing at buying gold which seems to be rising in value against fiat currency.

The stock market will probably see drops because people are moving money out so that they can service debt, mortgages.

Although I assume that most of the newly printed money will go out to big business and government backed games first, so the stock market might be kept up.

So, what I am doing is clearing the last little bits of credit card debt and car loan at the moment.

I am running a very cheap car (Ford Fiesta) and living frugally (Tesco Value style).

All holidays are either training courses abroad or payment-in-kind expedition medicine trips for which I tend to claim outdoor gear on expenses.

Savings this year are going to be pretty modest - around 12k, not entirely sure where best to put it.

I'm holding off house buying because it seems to me that general sentiment is that there is a lot of madness going on right now

and I want to make sure that the only debt I ever have to service again is a mortgage.

Fortunately my g/f is only 25 and ok with holding off having kids for a few years yet, so I don't have to have kids immediately.

I am also in the fortunate position of being able to emigrate fairly easily to NZ or Canada if I wish.

I'd be interested in what others have to say of my analysis of things, and where it would be best to put my 12k savings this year.

Edited April 19, 2007 by DissipatedYouthIsValuable

[It is different this time]

Question:

Why do you have to buy within the next 2 years? I've never heard of a forced buyer before.

You're just out of university. Enjoy life a bit first. Buy somewhere when you're sure you want to settle in an area.

Not always we agree on something so make most of it I was just going to reply same as your post good job I read the replies.

Why is that today's students have to buy straight out of Uni?

Save your money, pay back most of your debt, make sure your GF is Mrs Right to commit yourself & mortgage for the next 25 years, enjoy yourlife and don't believe those who say "renting is dead money" as so is the interest you would pay for an overpriced shoe box! + renting is about 40% cheaper so more chance to save money.

I wish I was just out of Uni, buying in today's market would be the last mad thing in my mind

[RosscoPK]

Question:

Why do you have to buy within the next 2 years? I've never heard of a forced buyer before.

You're just out of university. Enjoy life a bit first. Buy somewhere when you're sure you want to settle in an area.

Basically, my Gran passed away last year and my mum inherited her house.

My parents retire in the next couple of years and for them, their house now would be contributing to around 75% of their pension fund - thanks to Gordon screwing up the pensions - when they sell it. Hence they're planning on moving into my Gran's house a year or so after they retire - and I want them to have a happy retirement, which means having to find somewhere to live.

They're not kicking me out or anything - those are just their future plans, and hopefully by then I'll have a sizeable deposit available to me.

-------------

Thanks everyone for your responses so far - very helpful!

'drminky' mentioned about the investment option. I have been thinking about Premium Bonds; an idea put into my head by my cousin who apparently has won 'loads' from them. But at the moment I'm keeping the money in a high-interest savings account.

[Guest DissipatedYouthIsValuable]

Basically, my Gran passed away last year and my mum inherited her house.

My parents retire in the next couple of years and for them, their house now would be contributing to around 75% of their pension fund - thanks to Gordon screwing up the pensions - when they sell it. Hence they're planning on moving into my Gran's house a year or so after they retire - and I want them to have a happy retirement, which means having to find somewhere to live.

They're not kicking me out or anything - those are just their future plans, and hopefully by then I'll have a sizeable deposit available to me.

-------------

Thanks everyone for your responses so far - very helpful!

'drminky' mentioned about the investment option. I have been thinking about Premium Bonds; an idea put into my head by my cousin who apparently has won 'loads' from them. But at the moment I'm keeping the money in a high-interest savings account.

At least with a high-interest savings account you have some idea of what you're getting.

Premium bonds are a lottery, I'm not sure what your average *likely* win will be over x years - maybe somebody here does?

[RosscoPK]

I wish I was just out of Uni, buying in today's market would be the last mad thing in my mind

Fair comment and I completely agree.

I may have given the wrong impression earlier, I've been out of uni for about four years, so I'm not completely 'fresh' in a sense of the word. But it's only within the last year or so that I've been able to put a sizeable chunk of my wage towards a deposit; with work experience comes the money!

[A Fool & His Borrowed Money]

Welcome to the site!

If your rent is less than the price of an interest only morgage on a similar property then renting is a way of SAVING money.

Phoney

Indeed,

Remember banks dont lend you money out of the goodness of their hearts, they make you pay extra for it. Mortgage Interest, which is Dead Money. Over the course of a mortgage term of say 150k, you will be paying back 300k-plus. 150k of it being dead money.

Not only that, but if prices fall & you buy when cheap in a few years or so, the end result is you pay out less for accomodation over the years of your earning life, making you richer for it.

You can also reverse this process of dead money on interest from a loan by turning it into alive-and-kicking money,

Also known as Interest Paid-To-You from the savings you build up (and also from reducing the mortage amount you will eventually need- reducing the dead money interest charge again) ,by saving in those few years before buying, which propels your finances at flank speed ahead.

Hope this Helps

Edited April 19, 2007 by A Fool & His Borrowed Money

[Wemb]

Premium bonds are a lottery, I'm not sure what your average *likely* win will be over x years - maybe somebody here does?

http://www.nsandi.com/products/pb/rates.jsp

Given the odds, and that most of the prizes are £50, you get a return of about 2.5% tax free. Of course, you could win a £1,000,000 prize...

The important difference is, of course, that unlike with scratch cards and the national scam, you can get your money back.

Wemb

[Guest DissipatedYouthIsValuable]

Fair comment and I completely agree.

I may have given the wrong impression earlier, I've been out of uni for about four years, so I'm not completely 'fresh' in a sense of the word. But it's only within the last year or so that I've been able to put a sizeable chunk of my wage towards a deposit; with work experience comes the money!

I would say, and my forum name is testament to this, that just out of Uni it is probably a good idea to enjoy youthful life, but pay off the non student loan debt as quickly as is comfortable.

House buying only if you really want to have a house to live in rather than rent the same thing more cheaply, but I wouldn't look on it as a good investment in the climate we have now.

Early years out of Uni are a good time to play around a bit with experiences and get some idea of the style of life that suits you. Diverse experiences also broaden your outlook and can make you more employable later.

Maslow's hierarchy of needs can be useful if you're a bit of a bonehead, as I was, to give you a bit of direction but they're flexible constructs too.

[christhpc]

'drminky' mentioned about the investment option. I have been thinking about Premium Bonds; an idea put into my head by my cousin who apparently has won 'loads' from them. But at the moment I'm keeping the money in a high-interest savings account.

Premium bonds are a pretty crap investment. Leave the cash in the high interest account - it'll be attracting some fat compound interest! Fill up your cash ISA if you haven't already - okay so it's only £3000 a year (£3600 from 04/2008 though!!) but it's good stuff. If you want to have a flutter, stick the minimum £100 into premium bonds and then forget about it. Anything above that is just tying up your money. In my opinion of course.

[cue the endless pages of posts banging on about putting your money into gold bullion]

[wotnocrash]

Premium bonds are a pretty crap investment. Leave the cash in the high interest account - it'll be attracting some fat compound interest! Fill up your cash ISA if you haven't already - okay so it's only £3000 a year (£3600 from 04/2008 though!!) but it's good stuff. If you want to have a flutter, stick the minimum £100 into premium bonds and then forget about it. Anything above that is just tying up your money. In my opinion of course.

[cue the endless pages of posts banging on about putting your money into gold bullion]

A high interest account is pretty crap if you are paying higher rate income tax, which an increasing number of people are. You will be lucky to get 4% after tax, which is not enough to maintain the purchasing power of your savings.

We put £100 into premium bonds and got a 50 quid prize in the first year... a 50% tax free return!

[Yandros]

RosscoPK,

I was in a similar position when I first graduated...in 1990 (anyone care to guess already where this story is heading )

In my case my first job was at the opposite end of the country, so I had no choice but to get my own place. I rented for 6 months, but I was prodded by my parents to buy somewhere as "renting is a waste of money", and "I needed to get on the property ladder". I knew nothing about mortgages, didn't know the area too well, didn't know the first thing about the housing market (pre-Internet remember too!). I bought a new build studio flat for £44K, on a salary of about £14K - 95% mortgage.

Then came the crash. At the low point people were just putting keys through the letterboxes and walking away, so several flats were sold as vacant repossesions for as little as £13K.

The birth of the amateur property developer and BTL has send the market into the twilight zone, and it's difficult to predict what's going to happen next. However, if you saddle yourselves with a huge mortgage (say £130K), and we see a sizeable correction followed by stagnation, you'll be trapped. Once in negative equity, the building societies start sending people helpful letters suggesting payment plans for clearing the amount you owe. Essentially you might suddently find that you have tens of thousands of unsecured debt!!!

My parents were able to help dig me out of the financial hole I was in, but it wasn't pleasant. It took a further 7 years for the flat to return to the 1991 value. Consider how you could cope if you found yourself in that position, because there is a very real possibility that it will happen.

With 20/20 hindsight I should've rented untill 1993. Instead of a pokey damp studio flat next to a railway line and an industrial estate, I could've bought a 2 bed terrace in a nice area for the same money :angry: I didn't know any better at the time. All I knew was that I could JUST afford a tiny flat, and that there were only a few units left.

I don't have a crystal ball - I'm just becoming old and cynical. Our current house has increased by 240% in 8 years when inflation is circa 3%, and I smell trouble. I'm not sure of the magnitude, timescale or mechanism of a 'correction', but the current position is unsustainable.

Please be careful.

[nohpc]

Hello Everyone,

This is my first post here - apologies if it's in the wrong board.

I've been reading these forums for a few months now and have been keeping a keen eye on the housing market since I'm looking to buy a house (well, actually, I have to buy) with my girlfriend within the next two years.

I am currently saving for at least a 5% deposit at the moment. As a recent graduate I (naturally) have student debts, but so far have managed to save just over 2k - not a huge amount, but you have to start somewhere I guess!

Many of my work colleagues and friends are trying to persuade me to rent instead, but I believe this to be a total waste of money. I'm not interested in one of those Share Schemes and I believe these to be a result of the high house prices, rather than a solution to them.

There seems to be this philosophy of 'buy now while you still can', but with the recent news of the 3.1% inflation and impending IR rate hikes, I feel that buying now or within the next year would be financial suicide. Come August, myself and my partner will (hopefully) be earning roughly 40-45k and are looking to buy a new property (more likely two-bedroom) in Leicester, around the 130-140k mark; neither of us are especially keen to get anything more than a 3x - 3.5x mortgage.

Is it worth buying now or best to wait as long as I possibly can? While 130k is not going to be out of our range by any means, if an identical house were to go up by another 10k+ over the next year or two, well - that'd be a bit of a pain in the backside!

It seems that there's been talk of a 'possible' crash for the last two years, but instead the prices have just continued to increase. A work colleague (who owns two houses) thinks that the prices will continue to climb for the forseeable future, but I can't understand how house prices can now just simply keep going up and up and up without this being reflected in average wage earnings.

If they do continue to increase - oh, lord!

Any advice?

One thing is for sure. House prices are not going to continue to increase by amounts seen in previous years. They may rise by a little, stay the same, or drop a little but you are unlikely to lose out much over the next 2 years by not buying. London is a different beast but I will assume you don't live there seeing as you are talking about 2 k being the start to a 5% deposit.

If you are going to stretch yourself to buy then carry on saving and wait and see what happens. There is never a rush to buy a house in a non booming market. If you do find yourself in a situation where you can afford a house and the repayments will not financially stress you then I would still recommend you go ahead and buy. Preferrably with a 10 - 15 % deposit minimum but not essential.

Just re-read your post. If you are on a combined salary of 45 k and looking at a flat for 130k that you really like the look of then just buy for god's sake. The repayments on that will hardly even register. I earn about the same and easily manage a much larger mortgage than that.

Edited April 19, 2007 by nohpc

[time]

Question:

Why do you have to buy within the next 2 years? I've never heard of a forced buyer before.

You're just out of university. Enjoy life a bit first. Buy somewhere when you're sure you want to settle in an area.

My sentiments exactly. A mortgage is usually set over 25 years. Prices are very high at the moment and will go a little higher before the crash comes, sooner rather than later. My only advice to you, is put that £2000 in a savings account and sit on your hands.

Theres more to life, then signing up to a mortgage. Travel the world, see new things, dont be in too much of a rush to be on the property ladder.

Scumbag EAs and VI (Estate Agents & Vested Interests) present a world of "Your running out of time".

Welcome to site and remember you have all the time you need.