Top

Now's the time to buy property!

Harvey Jones thinks now is the right time to get on the property ladder. But what do you think?

Who would be a first-time buyer right now? Given the uncertainty over house prices, I wouldn't. But my friends Rachael and Chris are in that fretful position, hunting for a flat in south London, and they are going through agonies.

Is the house price crash over? Will prices fall further? Will interest rates shoot up? Can we get a mortgage at all? What if we lose our jobs? Are we doing the right thing?

Plenty of people must be in a similar position.

So they bought me a beer and said: "Harv, you're a financial journalist, please tell us what we should do."

And I said: "Ed Bowsher says the house price bust is not over, so there's no rush."

"But what do you think?"

I was wriggling, their financial future in my hands, then had a brainwave: "Let's ask the lovemoney.com community. That way we can get a spread of opinions about what you should do. And boy, they do have opinions."

So please, help me out here by stating your views in the comment box below.

Talking tosh

Like many Britons, Rachael and Chris are obsessing about what will happen to house prices next.

This is what I told them:

"UK houses are hideously overpriced and should have fallen by 30% or 40%, but they haven't. In fact, they have even been picking up lately.

"A couple of weeks ago I even claimed that the house price crash is over, although most people on the lovemoney.com message board thought I was talking tosh.

"Even if I was, the market has still displayed a surprising resilience, particularly in London. If you buy now, your home is likely to be worth more than you paid within five years, and possibly even two or three.

"So if you see the right place at a price you can afford, snap it up while you can."

Rachael and Chris said they would think about it, and in the meantime, it was my round.

The happy couple

Before I solicit your advice, you need a few facts about my friends.

They are a recently and happily married couple in their (very) early thirties. She is a drugs company PR, he is a trained chef who works in food retail. He lost his job three months ago, but after six anxious weeks, found a new one.

Their combined earnings total £60,500 a year. They currently pay £700 a month to rent a tiny one-bedroom flat in a dodgy part of south London. They have been looking at ex-local authority two and three-bedroom flats in Camberwell costing between £170,000 and £200,000.

Buying ex-LA should secure them a larger flat, but the blocks they have seen so far have been "pretty ropey".

Rachael isn't happy. "You need to spend £200,000 to buy anything in London that isn't a shoebox or vile. So even with two decent incomes, we are still miles away from owning anything. Really, it's quite upsetting!"

They have a £20,000 deposit, courtesy of the bank of Mom and Dad, but were shocked to discover they need 25% to get the best mortgage rates. "That's practically impossible in London! How are we supposed to have £50,000 knocking around?" Rachael said.

She has outstanding debts of £6,500, commendably hacked down from £17,000 three years ago.

Britannia rules!

I wasn't sure Rachael and Chris could even get a decent mortgage with a 10% deposit, so I checked with Tim Wilson, mortgage sales manager at Fool Financial Services.

He told me Britannia building society offers a five-year fixed rate at 5.69% up to 90%, with a £599 arrangement fee. It will lend up to 3.75 times joint income, so they can afford to buy up to £200,000 (or £226,875, if they could squeeze more deposit out of M+D Ltd).

That is a great deal, he says. The next best 90% LTV deal is a pricey 6.99% five-year fix from Halifax.

If inflation picks up in the next five years, as many suspect, that Britannia rate could look even better (provided that it will lend on an ex-LA flat, some lenders can be picky).

Renting is still cheaper

Buying would still cost them more than renting. The monthly repayments on a £150,000 mortgage (to buy a £170,000 property) would cost £940 a month with Britannia, while borrowing £180,000 (to buy a £200,000 property) would cost £1,125 a month. These figures assume a 25-year capital repayment mortgage.

So they will pay an £240 or £425 a month more than they would if they were renting, but in return get an extra bedroom or two, and may one day be the proud owners of an ex-LA flat.

Go for it!

If they could magic up a bigger deposit of 25%, Abbey would offer them a five-year fix rate at just 4.89%.

But it would take Rachael and Chris several years to save that, by which time both mortgage rates and house prices could be much higher.

Then again, maybe in a month or two, they could have a better choice of rates at 90% LTV.

My verdict

As you can see, this is a tricky decision. The good news is that there is a mortgage for them (subject to status etc).

If Rachael and Chris find a halfway decent place and can afford the repayments, I would urge them to buy.

You may have a different view. Tell me what it is!

Compare mortgages at lovemoney.com

Most Recent


Comments



  • 21 June 2009

    First time posting on this site. Very interesting comments above with one point missing. Apologies if I have missed it. Buying verses renting - in most circumstances there can be no competition. Whatever the circumstances of what it has cost you throught the years, if you rent you end up with nothing. If you buy, you eventually end up with property which you own and can pass onto your children/dependants.   We went through the 1989 price crash which was just as severe as the present one and lost one third of the value of the property we had purchased. In fact just as in these times the flat we purchased just wouldn't sell. People who had purchased studio flats were even worse off. The slump lasted 6 years. Now many years on, I don't regret the financial hardship we went through. People must accept in these times, you just forget about the holiday abroad, take the pain when you are young and you will come through it later in life. There is little doubt that if you can afford to buy at the moment, it is likely to be a good move long term.   Don't expect too much too soon and don't buy as an investment if you don't know what you are doing - if you fall into this category you deserve what you will no doubt get.      

    REPORT This comment has been reported.
    0

  • 21 June 2009

    SevenPillars Personally, I don't actually think our views of the situation are that different, I think we just approach the problem in different ways. Yes, Northern Rock went a little overboard with its lending, but it actually had one of the highest quality mortgage books in the country before being nationalised. At the end of 2007, only 3,492 of its accounts were in arrears. It was only after nationalisation and the collapse in the credit markets that its funding costs short up, and hence arrears rose. At the end of 2007, even after the initial nationalisation, they were only around 0.75% compared with the industry average of 1.88 per cent according to the Times.Which implies that even though Northern Rock lent a lot, it was lending to those who could afford to pay it. Indeed, their "125% mortgages" were actually 95% mortgages and an unsecured loan of up to 30% of the property of £25,000, and numerous banks were and still are willing to give large unsecured loans to people with no equity in their homes - Sainsburys will offer you a £25,000 loan today - you just have to have a Nectar card! So there are some areas of the market where active lending actually still is at the 2007 level. Regarding the self cert mortgages, mine wasn't actually a self cert - I lost my payslips in a fire before the application, so the lender never got to see them. I provided employment references so they were fine with it, but HR told me they didn't check the references. Yes, I am sure there will be some dodgy dealings, but the US is a bad example. The whole sub prime crisis started in the US specifically because brokers over there were offering Ninja loans - no income no job no assets. They encouraged people to apply when they knew they had no income or means to afford the repayments, and this has been proved. There have been accusations and insinuations in the UK market yes, but nothing has been proved on such a massive scale. That's why the arrears rate in the UK is still less that 2%, whilst in the US it's at 12%. I completely agree that the level of new lending is likely to be subdued for a while, whilst the wholesale markets completely unwind and people work out exactly how much they lost and where they lost it. And yes, a 66% fall in new mortgage lending from 2007 to 2009 sounds about right. However, I don't agree with your conclusion that this means sellers have to drop their prices. Remember that most sellers are also buyers, and with no available funds to buy a new place they can't sell their old one. Like I said, the only people trying to sell are house building firms and people who absolutely have to sell for one reason or another. Even those people are increasingly looking to rent their homes as they can't actually afford to sell with mortgages this hard to come by. That's why I think the market will completely stagnate for a while. The indices will rise a bit because the effect of all the house builders getting rid of all their stock has caused the market to overshoot - I've seen agents openly advertising new builds at a 35% discount to BTL investors for the last six months, so that has caused massive short term downward pressure on prices. Now the number of new housing starts has dropped right off, that pressure should ease and that will be reflected in the market indices, as is happening at the moment. Also, I'm not quite sure what you mean when you say there's a lack of affordability - property is still as affordable as it was in 2007 when the market was rising - if anything the typical interest rate is quite a bit lower. The only thing holding FTBs back is the need for a larger deposit. That's not something that's easily fixed with lower prices - if you don't have a lot of cash lying around then you don't have a lot of cash lying around! Ultimately, and unfortunately, I think most FTBS are going to be priced out of the market for a while, and will probably end up having to rent the exact same property that they would have bought if the mortgages were available. That's the problem with the argument that the market must fall - property prices behave in a sticky downward manner all over the world, and they generally need a significant force to push them downwards. Lack of new mortgage finance doesn't provide that force, as it simply takes buyers out of the market, and hence reduces the number of transactions. What's needed is either a big rise in interest rates making current mortgages unservicable (as happened in the 1990s); a massive increase in supply (as happened in the 1980s when Maggie sold off all the council houses dirt cheap); or a major fall in economic health and employment (as happened in the 1970s under Harold Wilson). We may yet get the first or last one of these, but it's by no means guaranteeed, and until we do there's not enough downward pressure to create a significant fall in the market. Oh, and peepobaby, I don't recommend that they try to get 25% off the price because of what the house price indices say. I recommend they try and get 25% off the price because they can given current market volumes! It's just like all the money saving articles - you don't make your own wine or use old clothes as toilet paper because you can't afford wine and loo roll, you do it because you can and because it saves you money. Exactly the same principle - at the moment there are very few buyers that qualify for mortgages, so if Chris and Rachael do then they should try and milk it for all its worth! The seller may refuse their offer, but they may turn out to be desperate to move and will accept it. That's nothing to do with anyone's predictions about the market, it's just common sense!

    REPORT This comment has been reported.
    0

  • 20 June 2009

    Seems that there are two groups. Those that think that house prices depend on mortgage availability and those that don't. Even Swarbs recommends that buyer should try and get 25% off asking. That says it all really.

    REPORT This comment has been reported.
    0

Do you want to comment on this article? You need to be signed in for this feature

Copyright © lovemoney.com All rights reserved.

 

loveMONEY.com Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FCA) with Firm Reference Number (FRN): 479153.


loveMONEY.com is a company registered in England & Wales (Company Number: 7406028) with its registered address at First Floor Ridgeland House, 15 Carfax, Horsham, West Sussex, RH12 1DY, United Kingdom.


loveMONEY.com Limited operates under the trading name of loveMONEY.com Financial Services Limited.


We operate as a credit broker for consumer credit and do not lend directly.


Our company maintains relationships with various affiliates and lenders, which we may promote within our editorial content in emails and on featured partner pages through affiliate links. Please note, that we may receive commission payments from some of the product and service providers featured on our website. In line with Consumer Duty regulations, we assess our partners to ensure they offer fair value, are transparent, and cater to the needs of all customers, including vulnerable groups. We continuously review our practices to ensure compliance with these standards.


While we make every effort to ensure the accuracy and currency of our editorial content, users should independently verify information with their chosen product or service provider. This can be done by reviewing the product landing page information and the terms and conditions associated with the product. If you are uncertain whether a product is suitable, we strongly recommend seeking advice from a regulated independent financial advisor before applying for the products.