Is it a good time to buy a house?

[New Girl]

We've had an offer accepted on a house, but I can't help but think 'Brexit, Brexit, Brexit'. Even the mortgage broker we saw eluded to it. Googling doesn't help. So I was wondering, as a first time buyer, is now really the best time?

[rendelharris]

If you can afford it, you love it, you're going to be there for a good time, go for it! We bought our second flat last year and adore it - don't regard it as an investment at all, it's just somewhere we love to live and can afford. Good luck!

[malumbu]

Will the overseas investors market crash? Market for one millon pound apartments has slumped.

will the City bonuses mean that SE London continues to remain attractive?

Will the bubble that the London Overground brought burst?

Will interest rates spiral out of control?

will the government do anything to cool house prices?

will buy to let, and now buy to Airb'n'b ever end?

Will the pension funds continue to invest in property?

Will students continue to come to London, in particular the rich ones? How far can student debt go?

God knows! Most of us who have brought property can always point to a better time to do have got on the ladder.

Apart from some purchases in the late 80s when house price inflation was high, and there was a feeling that we'd never had it so good, there probably hasn't been a bad time to buy in the last 30 years IN LONDON. Some parts of the UK haven't recovered since the 08 crash.

[alice]

House should be cheaper than last year.

[KidKruger]

In London I would wait for the slump, then by.

[alice]

Close to that now?

[red devil]

In case there was a future downturn in the market, I'd always buy a property I felt I could add value to, be it a general spruce up, revamping the kitchen and/or bathroom, or even the possibility of an extension and/or loft conversion. Adding extra bedrooms is a good way to add value, as long as you don't over-develop.

I also wouldn't buy unless you can afford an increase in interest rates, say 2-3%. If rates stay the same, great, but if they go up and you can afford the extra cost, then that's good to know you can cope financially if things do get worse...

[Loz]

alice Wrote:

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> Close to that now?

Project Economic Suicide has barely begun, alice.

[alice]

So what's your prediction?

[robbin]

As with pretty much any market, unless you are obliged to act in the short term (because of your investment strategy or your circumstances), I think you are much better off looking at things long term - trying to guess the short term movements of the housing (or any) market up or down (and more importantly the precise timing of such events) is extremely imprecise and risky for lay people and experts alike.

As this is a purchase of a home, you will hopefully be in it for the long term, so as Rendel suggests, it is better looked at as a home rather than an investment (or at least a short term investment). That said, you obviously don't want to ignore the realities of the market and don't want to pay over the odds if you can help it (or miss out on further increases, which will also leave you paying more).

In my opinion (for what that is worth) there are two real fundamental considerations - the first and most important one is that you need to factor in a safety margin in terms of affordability. In other words, calculate what you can afford if interest rates rise substantially and if possible get a mortgage which allows a bit of flexibility in repayments if things became desperate (e.g. some mortgages allow you to overpay and then to take a later payment break if necessary).

It is crucial (I think) to avoid getting into the position where if interest rates rise it leaves you unable to afford the higher payments - if that happens you risk losing control and having to sell in a market which may be falling (or it may already have fallen) and then you are going to lose out - possibly substantially. In that way you are forced into being a short term investor, when it may be the worst possible position to be in. If you are going to sell your house, you want to be in a position where you are able to choose the timing of any sale and not be forced by some avaricious bank, to sell on their terms and timetable.

If you have left a good margin of safety in terms of affordability then you are not going to be forced to take short term decisions and in such a case you need be less concerned about market falls, if in the long term there will be price inflation.

The other fundamental consideration is that house prices rise and fall with demand comparative to supply. Demand may drop due to confidence issues (Brexit may or may not be one such factor). Then there is the financial affordability - at the higher end of the market there may be more of an adverse Brexit effect if it turns out that employment of higher paid city types takes a hit, but at the other points of the market, this is less likely.

The fundamental long term position in London (although not necessarily so out of London) is that there is presently an acute shortage of housing and land for new housing. In other words there is restricted supply (unusual for markets generally) which will tend to keep prices higher than they would be in a 'normal' market. That is unlikely to change dramatically in the short to medium term, so a large drop that is not later recovered in the long term may not be all that likely.

Just a few thoughts. When push comes to shove - who knows what will happen, but you can protect yourself as much as possible by at least being reasonably prudent. There is always going to be some risk, I'm afraid.

[Loz]

Everything Robbin said, with the additional consideration of asking yourself how flexible you need to be. If you may need to consider moving in the next 5 years (i.e. do you have a job that may need you to move?), then any drop in prices may lock you in due to negative equity.

If you are looking to stay longer term then this is less likely to affect you.

[Broco123]

New Girl - latest research on London resi market suggests property prices are stabilising, and only really took a hit in the ?1m+ area. The real shock was that prices weren't increasing. Even if prices did drop over the next three years, will it necessarily be more than the amount you've paid off your mortgage?

As mentioned above, as long as you can reasonably expect not to be in a situation where you are forced to sell, you should be fine over the long term, remembering house prices don't need too go up for you to live a great life in a home that is yours! Go for it lass!

[DulwichLondoner]

If you know your way around spreadsheets you could run some numbers to get a feeling for the cost of renting vs buying.

I have come up with some random numbers just for the sake of argument. Let?s say you have ?80k of savings for a new property, and you can use ?65k for the deposit and ?15k for stamp duty and other fees/expenses.

Let?s say you are currently paying ? 1,500 in rent every month. Over 2 years the cost would be ? 36k, less the interest you?d get from the ?80k (let?s say ca. ? 1,600), i.e. ? 36,000 - ? 1,600 = ? 34,400.

You want to buy a property worth ? 400k; you need ?10k in stamp duty, plus you?d pay at least ?5k (probably more) between legal fees, cost of moving, new furniture, etc. If you find a mortgage at 1.3%, you?d pay between ?8k and ?10k of interest and fees over 2 years: ? 8,710 if it were interest only, less if you?re repaying capital, plus fees etc. Let?s say ?10k for the sake of argument.

If prices in 2 years are the same as today, the cost of buying is ?10k + ?15k (stamp duty and fees) = ?25k vs ?34,400 cost of renting. Capital repayments are not a cost ? that is money you are repaying to yourself as it adds to your wealth.

If prices are 5% down, that?s a loss of ?20k over the ?400k price, so buying costs ?25k +?20k = ?45k, ie more than renting.

If prices are 5% up, that?s a gain of ?20k, so buying now costs ?5k (?25k cost less ?20k gain) vs ?34,400.

This is just a very simplistic way of looking at things, but I?m hoping it can give you an idea.

Of course, as others have said, the longer your horizon is, the less relevant these comparisons.

There are also many other factors which are hard to quantify. When you buy you?re more likely to maximise the available space: a 2-bed with bespoke furniture may easily have more storage than a 3-bed poorly furnished by the landlord. If you own you?re less likely to be kicked out for no reason ? I know cases of families who were given notice just after they had applied for schools because the landlord had just decided to come back to the UK.

No one has a crystal ball. My impression, based on about 1 year of assiduously following the local market, is that 2-beds still sell relatively quickly and have not gone down in price much, but properties of 3-beds or more have become way harder to sell, and I have seen many which get reduced multiple times then pulled from the market. Of course these are just my impressions ? I do not have enough data for any ?scientific? conclusion. Also, properties are not commodities: things like how they are marketed, or simply the luck

[JohnL]

alice Wrote:

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> House should be cheaper than last year.

Not in Southwark it seems.

"Hackney and Southwark, two of the cheapest boroughs in central London, saw price growth of 9.5 per cent to ?660,000 and 7.2 per cent to and ?630,000, respectively ? the highest in the capital."

http://www.homesandproperty.co.uk/property-news/buying/londons-falling-house-prices-drive-down-uk-autumn-average-a113781.html

Edit: Although looking at that monthly change (9.4) have a few properties skewed it ?

[Loz]

DulwichLondoner Wrote:

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> If you own you?re less likely to be kicked out for no reason

"less likely"??

[DulwichLondoner]

@loz, you?re right, I shouldn?t have said ?less likely?, but I hope the gist of what I was trying to say was clear!

@JohnL, Without any information on price by square foot, which is commonly tracked in other countries but not, AFAIK, here, it is very hard to understand how representative or comparable these statistics are. For example, when they say the average price went up by x% between 2015 and 2016, what does that mean exactly? The average price of all transactions? But how comparable are the transactions of those 2 years? To what extent is the increase driven, say, by a higher number of bigger and more expensive properties sold in one year but not in another?

If I remember correctly, property websites track the asking (asking, not sale) price in a given area by type (flat/house) and number of bedrooms, but it is not uncommon to find 3 beds with almost the same square footage of some two-beds.

I receive a weekly email from RightMove, and 50 to 80% of the properties I am notified about tend to be price reductions, either explicitly marked as much, or new instructions of the same property to a new agency at a lower price, but without the ?reduced? tag. This has been going on for a year at least; none of this happened 4-5 years ago when I bought.

This suggest that insane >10% year-on-year increases may be a thing of the past; it doesn?t necessarily mean there?s a house crash, and it might not even necessarily mean that prices are coming down: it may even be compatible with a modest year-on-year increase in price, just not by as much as some sellers were hoping for.

Finally, building standards in London are abysmally poor compared to other countries; leaving aside the Greenfell tragedy for a moment, I have seen properties, even relatively recent ones, with crooked corners and ceilings, incredibly poor insulation, and a number of other things which would cause German builders to lose their licence. All of this to say that I wouldn?t be surprised if the right property, in the right location and with the right characteristics, could still command relatively high prices. Of course capturing this with some summary statistics is effectively impossible.

[Take Note]

Agreed: Many of the properties I'm alerted to on Rightmove are reductions.

If you can afford to buy you are in a very fortunate position. If you genuinely can afford it - i don't mean the deposit and repayments but, as others have said, any other possible pitfalls - then go for it.

And if you do, many congratulations. Buying is by no means for everyone but if you think it is for you, then do it.

Buona Fortuna :)