Is it a really bad idea to buy a house right now?

[kissenger]

Long story, short... my partner and I want to buy a house in the near future, she's super enthusiastic, I'm worried about this supposed imminent 16–20% house price drop. I don't want to be in negative equity in a couple of years time. What should I do?

I'm in two minds over this:

On the one hand... we both want to buy a house, we've found a house we like, we have the deposit and we've spoken to a mortgage broker who has given us the green light. It's also the right time for us to move, with our boy coming up on 2 years old and hopefully another on the way soon. My OH dreads the thought of having another baby and maternity leave in the tiny house we're currently in. This is a big factor.

On the other hand... virtually every bit of news I've seen has said there is going to be a house price fall in the region of 16–30% in the near future due to Covid. When the furlough scheme and other support ends, supposedly millions are going to be out of work, which equates to 1000s of homeowners needing to sell-up, which will crash the market.

If we buy, and that happens, we're going to be in negative equity in the near term, and judging from the last crash in 2008 it will take the best part of a decade to recover. In which time we might be forced to sell or (more likely) remortgage, and we'll be in a crap position.

If it was just me, I would wait another year to see what happens. But delaying that long has costs for my family, so I'd rather not if I can help it. Plus, it does seem like the government is intent on doing everything it can to prop up the housing market. It obviously doesn't want a crash. Hence the stamp duty holiday and super low interest rates. So maybe there won't even be a big crash? Although I'm not stupid enough to think I know better than seemingly every top economist.

The other thought I had is, you can potentially 'crash-proof' yourself if you buy a property you can extend and add value to (the one we're looking at has a lot of potential to do that). So if the market drops by, say, 10%, but you've added £100k to a £200k house (after spending around £50k), then you're still up, especially when you also consider the money saved on rent.

Anyway, as you can tell I just can't decide, so hopefully OCUK sages can offer some advice?

 

[Raymond Lin]

Surely negative equity only matters is if you plan to sell? If it’s a house for a good 10, 20 years and you can afford it, the long terms aspect of value is irrelevant?

Unless you just want to see whether you can save some money which is understandable. But that’s a IF, people are predicting a market crash, they don’t know it for certain, it probably will but it’s not a sure thing.

 

[montymint]

If you can afford the payments and see yourself being in the house (and in a job) for the long run, why not?

Don;t regret missing out on the house of your dreams because you're thinking about what you'll do to move out.

 

[McBain]

Id go for it, who knows if/when any house price drop will come? It might never happen.

If you are financially setup and ready to move, a house ready that ticks the boxes then go for it.

If the price drop happens by the time you come to remortgage it may've recovered anyway.

 

[[FnG]magnolia]

Unless you can tell the future - and boy, do I have some upsetting news for you on that front - then the best you can do is use the market facts you have and take a view of the many (and often contradictory) opinions you'll read from economists, MPs, estate agents, and punters on a computer forum. The point is, there is no best time to buy, if by 'best' we mean some calculation that guarantees that you have scientifically proven the optimum timeframe in which to buy a house. There are better times to buy - strong market indicators, stabilised market, good choice of properties etc - but never the best time to buy, or at least not that you're aware of at the time. In hindsight you could probably apply some metrics given where the market is now versus when you bought but that's an exercise in futility (unless selling) and ignores why you buy a house in the first place: to make a home.

 

[Boge]

Old proverb. Man who sits on fence too long , gets sore bottom.

 

[Psycho Sonny]

If it was me I'd personally leave it 9-12 months and then buy. In fact it's what I just advised a family member to do. Sell their home now. Move in to the family home and re buy in 9 months time.

They are looking to move up the ladder too. The time to sell is now. The time to buy will be when the crash happens.

It will be a domino effect. Loads of cafes, restaurants, pubs, night clubs , cinemas, bowling alleys, etc are going to be effected. Then you have the airline industry has already cut tens of thousands of jobs. Travel agents are going bust. So will rental car companies, hotels near airports, etc, etc.

That has a domino effect. In fact you could be waiting 2-3 years for the crash to stop crashing. I believe there is a crash coming and it's going to be a huge one. 30 percent would be a conservative estimate. This is going to be massive compared to 2008.

The government has borrowed far too much money, is printing far too much and is giving out far too much. This depression will last a generation.

 

[Pawnless Endgame]

I'd go for it. It's better to pay for your own mortgage rather than a landlord's mortgage!

 

[cheesyboy]

Even back in the credit crunch, house prices bounced back within about 3 years.

And I strongly doubt reports of 20% house price drops anyway.

If you can afford it, do it.

 

[mid_gen]

If you're buying a house to live in for the mid-long term, just go ahead and buy.

If you just want a place for a few years, probably best to wait and see and keep saving deposit.

The Conservatives won't let prices collapse. They'll keep throwing money at stamp duty holidays and other nonsense to prop up prices. Interest rates are going to be zero for many years. Maybe a short blip depending on where you are, but it won't be sustained.

 

[happy_2008]

Im currently in the process of upsizing my 2 bed house to a 3 bed increasing our mortgage from 96k to 250k. We plan to be in the home for a good 10 years minimum so i doubt the prices will bother me much.

 

[Skeptic]

What if the house prices rise 20% - will you regret having waited? Macro calculations are almost always wrong.

A house is an emotional purchase, not just a financial one.

 

[HungryHippos]

I'd say it's probably still OK to buy (but try and negotiate a bit off the price).

However if any doubt on remortgage ability due to drop in value, consider a 5Y fix instead of a 2Y one. Costs a bit more but will let you know for sure what you're paying for the whole 5 years.

 

[happy_2008]

I'd say it's probably still OK to buy (but try and negotiate a bit off the price).

However if any doubt on remortgage ability due to drop in value, consider a 5Y fix instead of a 2Y one. Costs a bit more but will let you know for sure what you're paying for the whole 5 years.

This is what i am doing fixing for 5 years @ 1.42% this time around instead of 2 years

 

[HungryHippos]

This is what i am doing fixing for 5 years @ 1.42% this time around instead of 2 years

That is a good rate, you must have good equity to hit that level, at least 25% or so, if not above 40% for the best rates on the market. 1.42% on a 5Y fix is nothing to sniff at.

I'm in a slightly unique position of being on a tracker (no ERC so I can fix whenever I feel like it) at base rate + 1.09% on a 2Y deal since 1Y ago. Currently paying 1.19% due to that, but I doubt I can beat it, and 1.42% wouldn't cost much more per month.

Not really kept up with the latest on the BOE base rates, but apparently they are considering negative rates, which may lead to even cheaper mortgages. https://www.ft.com/content/5a6ecbce-f88a-4de7-89ae-59f49bf8f831

 

[happy_2008]

That is a good rate, you must have good equity to hit that level, at least 25% or so, if not above 40% for the best rates on the market. 1.42% on a 5Y fix is nothing to sniff at.

I'm in a slightly unique position of being on a tracker (no ERC so I can fix whenever I feel like it) at base rate + 1.09% on a 2Y deal since 1Y ago. Currently paying 1.19% due to that, but I doubt I can beat it, and 1.42% wouldn't cost much more per month.

Not really kept up with the latest on the BOE base rates, but apparently they are considering negative rates, which may lead to even cheaper mortgages. https://www.ft.com/content/5a6ecbce-f88a-4de7-89ae-59f49bf8f831

Im just within 60% LTV. Previously i was getting mortgage deals without the product fees but it turns out the whole deal over the 5 year period is better off with product fees, so this time i'm going for a mortgage with £999 product fee but with £250 cashback.

 

[HungryHippos]

Im just within 60% LTV. Previously i was getting mortgage deals without the product fees but it turns out the whole deal over the 5 year period is better off with product fees, so this time i'm going for a mortgage with £999 product fee but with £250 cashback.

Yeah makes sense, the product fees are much more punishing on 2Y products as well, on a 5Y one not too bad as the cost is the same but spread out over the longer time.

 

[happy_2008]

Just hoping that my sale and purchase go through ok. Its scary getting another big mortgage but the payments are manageable at £1k per month

 

[413x]

I wouldn't do it.

Unless it really is a dream house. If it's a first house that's just too get on the property ladder you'll likely get something better in 6 months.

Even a 5 percent drop is a lot of money

Sounds like it's not a dream house from your post.



I Bought my first house in January.
If I could go back now I would and not buy it.

Worst case is 20 percent fall.
Best case? Flat? A few percent up?

If someone said that about a share investment you'd wait.

 

[413x]

If it was me I'd personally leave it 9-12 months and then buy. In fact it's what I just advised a family member to do. Sell their home now. Move in to the family home and re buy in 9 months time.

They are looking to move up the ladder too. The time to sell is now. The time to buy will be when the crash happens.

It will be a domino effect. Loads of cafes, restaurants, pubs, night clubs , cinemas, bowling alleys, etc are going to be effected. Then you have the airline industry has already cut tens of thousands of jobs. Travel agents are going bust. So will rental car companies, hotels near airports, etc, etc.

That has a domino effect. In fact you could be waiting 2-3 years for the crash to stop crashing. I believe there is a crash coming and it's going to be a huge one. 30 percent would be a conservative estimate. This is going to be massive compared to 2008.

The government has borrowed far too much money, is printing far too much and is giving out far too much. This depression will last a generation.

I hope it won't be that bad lol.

But yeah you could also think of it like this.
A 15 percent decline for me would completely wipe out my life savings (85 percent ltv)
I could also have bought a much nicer house and still had that equity
Would not have money/job worries.

That's a swing of 45k in the bank (cash I had before buying) and option to buy any house.
To potentially 0k or even debt.


Its a massive difference. Massive.

 

[Psycho Sonny]

I hope it won't be that bad lol.

But yeah you could also think of it like this.
A 15 percent decline for me would completely wipe out my life savings (85 percent ltv)
I could also have bought a much nicer house and still had that equity
Would not have money/job worries.

That's a swing of 45k in the bank (cash I had before buying) and option to buy any house.
To potentially 0k or even debt.


Its a massive difference. Massive.

People don't have a clue how job losses work.

For example. If a pub shuts down that also effects the bookies and the chippy.

So with the airline industry they have lost 30k jobs. That then leads to job losses at travel agents and taxi firms and rental places.

Essentially every industry has been hit bar public sector, supermarkets, food retailers and Amazon type online places.

That has never happened before.

The government has never borrowed as much so quickly before.

Also they are touting as much as £20 for a single vaccine dose. Then add on postage costs of moving that around the UK and then the cost to set up administering it to the tens of millions of the public. You are talking billions.

The cafe outside my work already closed for good months back. It was always busy too. There will be thousands of them closing all around the UK.

The domino effect is as more people lose jobs that effects other industries harder and then they lose jobs and so on and so forth.

It's why they have been handing out so much free money. If we don't have a vaccine within the next 3-6 months it's gonna be mental.