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

[Mercenary Keyboard Warrior]

Your calculations are broadly fine, but what happens over the next 1800 days remains to be seen.

What if you break up and are a forced seller in a down market? What if they decide to adopt universal basic income and everybody gets money meaning the housing market booms? What if they put a flight path over your house? What about if you have Japanese knotweed which costs a tonne to put right? What if you decide to get a homebuyers survey and then find the property has structural damage that wasn't in the survey? What if it's on a flood prone area? What if you have some inheritance? What happens if you have more children and need a bigger property? What if a family member falls poorly and you need to move to support them?

The reason I say these things is the debate about "rent Vs buy" is not as straightforward as which is the best decision financially. If you rented and some of the above happened, you'd be glad you could get out quickly. On the other hand, if the next 5 years play out perfectly as planned, except you rented, you'd be financially worse off.

It's sensible to give thought to the housing situation in the country, but the sums you are doing almost never work out the way you would predict. This comes from the minute you choose to buy: there are things which will cost more than you expect, and others less.

This is the implicit unpredictably of big life decisions, and it should be this way! If everything went exactly as imagined, how boring!

Some of them are a bit meh but get your point, flight path is area dependent and isnt done on a whim, only OP knows if that is remotely possible
Japanese knotweed, its not that much in real terms its time consuming
Survey, a decent survey should pick it up, and if not thats why you buy house insurance, which will already know if its likely an issue from during the buying process
Flood area, likewise part of buying
Inheritance, impossible to plan for
More children (there are ways to avoid this )

Some of the contra points, what if no house price crash comes
What if your landlord decides to put up your rent dramatically
What happens if your landlord decides to sell and gives you notice
What happens if your landlord doesnt fix things properly when you have issues such as damp or a dodgy boiler etc
Can you do what you want to the house as a tenant, for the majority you cant, and for a lot of things you would be daft to anyway. For me when i rented this was seriously annoying, having to put up with things

There are pluses and minus in all things, benefits under some circumstances are negatives under others.

For most the difference in owning or renting is dramatic. Whilst the financial impact may not be high over 5 years, once you start getting into the 10, 15, 20 year horizon the difference can become massive.
There is going to be a real wave of pensioner poverty when the declining ownership group start to ripple into retirement, for many there probably wont be a retirement, they will need to work to pay rent.

 

[Skeptic]

Some of them are a bit meh but get your point, flight path is area dependent and isnt done on a whim, only OP knows if that is remotely possible
Japanese knotweed, its not that much in real terms its time consuming
Survey, a decent survey should pick it up, and if not thats why you buy house insurance, which will already know if its likely an issue from during the buying process
Flood area, likewise part of buying
Inheritance, impossible to plan for
More children (there are ways to avoid this )

Some of the contra points, what if no house price crash comes
What if your landlord decides to put up your rent dramatically
What happens if your landlord decides to sell and gives you notice
What happens if your landlord doesnt fix things properly when you have issues such as damp or a dodgy boiler etc
Can you do what you want to the house as a tenant, for the majority you cant, and for a lot of things you would be daft to anyway. For me when i rented this was seriously annoying, having to put up with things

There are pluses and minus in all things, benefits under some circumstances are negatives under others.

For most the difference in owning or renting is dramatic. Whilst the financial impact may not be high over 5 years, once you start getting into the 10, 15, 20 year horizon the difference can become massive.
There is going to be a real wave of pensioner poverty when the declining ownership group start to ripple into retirement, for many there probably wont be a retirement, they will need to work to pay rent.

Ha, yeah you are right, it was just a list of things which came to mind, and your thoughts are of course true too. I just feel that you can mind-**** yourself into never making big decisions ‘just in case’, and concentrating on the macro picture is often a net-negative.

Buy a lovely house, in a great area, that you intend to stay in for a good length of time, and the other stuff will play out as it will.

 

[HangTime]

There is going to be a real wave of pensioner poverty when the declining ownership group start to ripple into retirement, for many there probably wont be a retirement, they will need to work to pay rent.

Difficult to say for sure though, if you look at short term trends, home ownership is on the rise in the UK (2019 was highest proportion since 2013) and it is conceivable that those 'not on the ladder' may get on the ladder before retirement. Part of the reason for the long-term decline in home ownership may be simply because people are buying homes later, so you have a bunch of people in their 20s now who don't own homes but that may not be their long term outlook.

To get a handle on this I think you'd need to look at the proportion of people who are renting as they enter their later decades of working life and see what the trend on that is. i.e. are we seeing a rise in people in their 40s and 50s renting.

 

[HangTime]

Ha, yeah you are right, it was just a list of things which came to mind, and your thoughts are of course true too. I just feel that you can mind-**** yourself into never making big decisions ‘just in case’, and concentrating on the macro picture is often a net-negative.

Buy a lovely house, in a great area, that you intend to stay in for a good length of time, and the other stuff will play out as it will.

The problem is lovely houses in great areas often carry a premium pricetag and/or are out of reach for many. Lovely House | Lovely Location | Affordable - pick any two. Staying in one place, at least pre-Covid was becoming less viable (people switching employers more frequently than in yesteryear) although I do think WFH trends will have an impact here.

 

[Daaaavvveee]

We sold our house that we rent out about a month ago, we are going to be buying as well, not really too fussed if prices tank too much, we need somewhere to live and don't want to rent ourselves anymore.

 

[Skeptic]

The problem is lovely houses in great areas often carry a premium pricetag and/or are out of reach for many. Lovely House | Lovely Location | Affordable - pick any two. Staying in one place, at least pre-Covid was becoming less viable (people switching employers more frequently than in yesteryear) although I do think WFH trends will have an impact here.

I agree - but this is one of the reasons that I disagree with trying to predict macro trends to make micro decisions. One of the posts in this thread said "absolute worst time to buy", and while that might be true in some locations, or for some particular strata of the market, it is by no means true for all.

People need to consider their own circumstances - and use that to make informed decisions about the financial moves they make - rather than trying to predict what will happen next in a broader sense. Just my 2p anyway.

 

[Mercenary Keyboard Warrior]

Difficult to say for sure though, if you look at short term trends, home ownership is on the rise in the UK (2019 was highest proportion since 2013) and it is conceivable that those 'not on the ladder' may get on the ladder before retirement. Part of the reason for the long-term decline in home ownership may be simply because people are buying homes later, so you have a bunch of people in their 20s now who don't own homes but that may not be their long term outlook.

To get a handle on this I think you'd need to look at the proportion of people who are renting as they enter their later decades of working life and see what the trend on that is. i.e. are we seeing a rise in people in their 40s and 50s renting.

I havent seen anything recent and its quite hard to find anything reliable, but the last I heard was the percentage of that demographic you mention which was what I was referring to was indeed higher now than historically
For sure the biggest wave comes in 20-30 years or so
Stuff like shared owernship has boosted overall rates (they are included iirc) but these still cost in retirement.

And again, macro % of teh population etc is fine and all that, but every individual needs to worry about themselves

Just to add, I also believe historically quite a high percentage of the non house owners were in council type acomodation which by all current metrics is bargain priced, with typcially ok maintenance

Thats very different now with most in private rented with much higher cost

 

[Mercenary Keyboard Warrior]

I agree - but this is one of the reasons that I disagree with trying to predict macro trends to make micro decisions.

Pretty much what i said before
The person should look at themselves and their situation whilst keeping an eye on the macro

People were dismissing rising prices on here a few weeks ago, and yet its now a thing
Most expect it to be very short term (pent up demand being released from COVID lockdown) but it is what it is.

If the vaccine comes, and the wave of optimism carries on, those doom and gloom merchants may look really silly

 

[HangTime]

I really think doom and gloom could apply not in market aggregate but suppressing prices in naff property near employment hubs. I just think people are going to look at it and be thinking do I really want to be forking out £600k+ for a 2bed maisonette in an area with a bit of crime if there is less need to be in easy reach of central london / City / Canary Wharf etc. So I think there is a middle ground between micro- and macro- i.e. don't necessarily worry about the overall market future but do worry about the market future in the location you are buying. I had given consideration to buying a flat in London but I definitely won't be pursuing that now.

 

[Mercenary Keyboard Warrior]

I really think doom and gloom could apply not in market aggregate but suppressing prices in naff property near employment hubs. I just think people are going to look at it and be thinking do I really want to be forking out £600k+ for a 2bed maisonette in an area with a bit of crime if there is less need to be in easy reach of central london / City / Canary Wharf etc. So I think there is a middle ground between micro- and macro- i.e. don't necessarily worry about the overall market future but do worry about the market future in the location you are buying. I had given consideration to buying a flat in London but I definitely won't be pursuing that now.

Very much, if lockdown has taught many anything its that there are some real benefits of having more space and particularly outside space

WFH will change to some extent, the technology has been there for a while for many. With fibre rolling out more the poor connection will be a thing of the past for most.
Sensible employers will start allowing office staff to be partly WFH I am sure.

 

[pp111]

In my experience negative equity is difficult to achieve and never lasts long. I mean people will not sell their houses at a huge loss so while the news may rattle on about house prices falling what usually happens is they do for those who are forced to move...the rest of the population just hang on and wait it out.
Over the past forty years or so house prices have continued to rise with only a few hiccups that didn't last long. My advice is to go for it if you can because you never really know what tomorrow holds. Sure it prices could fall but in that case no one will sell so you won't be able to buy anything anyway. Just be happy with the fact that you managed to get in to a house and forget what it's worth for a while. And you know most people who talk about equity NEVER realise that equity because they don't sell the house and move in to a tent with gold bullion in their pocket ( I admit that some do, but they are rare ).

 

[HangTime]

I guess it depends on how you define equity "realisation". In my eyes, people who draw-down on equity to fund purchases (extensions, cars, holidays etc) are realising the equity. People who use the equity to move to a better home with the same mortgage are realising the equity. Of course it could be that the equity gain on the home they are selling is lower than the price rise on the new property that has arisen during the same time period, but they've still realised equity because at least a portion of that new property was funded by equity from the old one and they have a better quality of life.

If we define "realisation" as converting into raw pounds, shillings and pence then sure, it's not that common, but I would argue that this form of realisation isn't the only benefit from increased equity and if we dig deep you could argue that with house moves there is a brief window when they have realised the equity, it's just they've then spent it the same day.

 

[The_Arbiter]

On those points, considering the likelyhood of future builds in the area and infrastructure is sensible. New or lack of new roads, shops and employment make a huge difference to quality of life as well as price. Allbeit a crystal ball thing, but good research can help when deciding on future worth.

I think the chances of getting well built homes at "affordable" prices decreases as time goes on too. Those quality new builds are a fortune. The standard new builds are junk, but still have big price tags.

 

[kissenger]

I think this thread has swayed me a bit in the direction of buying. It’s just the doom and gloom that gives you a niggling doubt. And the thought that if we buy at the bottom of the market instead of the top we could in theory have much more equity in five years. But it’s a very big ‘if’... There might be no drop, or I could be waiting years for it and paying rent somewhere we don’t like in the meantime.

We’ve tried to do our homework and pick a good spot: it’s in a nice suburban location, good schools, nice parks nearby, not on a flood plain, etc. So hopefully if it happens it will work out okay.

 

[pingwing]

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?

Raymond Lin has summed it up perfectly.

You should buy a home to live in, not worry about the value it might be worth in a year/5/10 years.

With the pandemic and not knowing if there will be a flood in the market next year, there will always be buyers for houses, the stay at home message has re-evaluated a lot of people's priorities and owning a proper space is going to be a commodity for a long time what ever happens. I doubt this potential crash will be anywhere near like the last one just because the demand for multiple rooms and a garden will only increase.

Spend as much as you are comfortable with on the nicest area/biggest property you can get, avoid flashy already done up houses (you're paying for someone else's taste) and don't get too hung up on the concept of equity.... Civ4 has the quote "something is worth what the purchaser will pay for it" when you discover currency and that's most true with houses.

 

[HungryHippos]

Raymond Lin has summed it up perfectly.

You should buy a home to live in, not worry about the value it might be worth in a year/5/10 years.

With the pandemic and not knowing if there will be a flood in the market next year, there will always be buyers for houses, the stay at home message has re-evaluated a lot of people's priorities and owning a proper space is going to be a commodity for a long time what ever happens. I doubt this potential crash will be anywhere near like the last one just because the demand for multiple rooms and a garden will only increase.

Spend as much as you are comfortable with on the nicest area/biggest property you can get, avoid flashy already done up houses (you're paying for someone else's taste) and don't get too hung up on the concept of equity.... Civ4 has the quote "something is worth what the purchaser will pay for it" when you discover currency and that's most true with houses.

Theoretical scenario: You buy a house now with a 2Y fix mortgage and a 10% deposit. In 2Y time the house has lost 20% of it's value. You're now in negative equity as you owe more than the house is worth on the mortgage. You can't remortgage so you're stuck on the SVR paying higher than normal interest rates.

This is often the aspect that people tend to overlook. You only realise a loss when you sell, but in the meantime having a low deposit can increase the risk when it comes time to remortgage.

 

[Robi]

Theoretical scenario: You buy a house now with a 2Y fix mortgage and a 10% deposit. In 2Y time the house has lost 20% of it's value. You're now in negative equity as you owe more than the house is worth on the mortgage. You can't remortgage so you're stuck on the SVR paying higher than normal interest rates.

This is often the aspect that people tend to overlook. You only realise a loss when you sell, but in the meantime having a low deposit can increase the risk when it comes time to remortgage.

This is certainly one of my worries as a FTB. We're going with a 2 year fix with overpayments, so the house would need to be worth circa 16% less than what we bought it for to end up in negative equity. I have absolutely no idea if that's realistic or not, as I don't have a crystal ball, nor am I an economist, but that seems like a catastrophic drop in value over a 2 year period. Reading something like that makes me feel anxious about buying now.

HSBC provided an example of what the monthly mortgage payment would be after moving onto the SVR at today's rate and it increased by approximately £100. We could afford that. We could even afford it if the payment increased by £500.

 

[flea.rider]

so buy with a 5 yr fixed at a good rate should see you thru most of the bad stuff

 

[Robi]

so buy with a 5 yr fixed at a good rate should see you thru most of the bad stuff

It's too late to change as the mortgage has been agreed. The valuation was completed weeks ago. If we opted to change to a 5 year fix with HSBC, it would surely mean starting the application again. I don't think HSBC even offer 90% LTV mortgages now.

 

[SpeedFreak]

Unless you expect it to lose the equivalent of rent less interest over a sustained period I can't see the issue, provided your income is stable.