Buy property now or wait for a bit?

Discussion in 'Finance, Property, Law' started by oldcolt, Jan 5, 2011.

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  1. I thought the following (slightly edited) PM sent to me just before Christmas and my reply may be helpful to others wondering whether to buy a property this year or wait and save a larger deposit.

    Dear OC
    I am looking to buy a small (£150k ish) house in the West-country in the next year or so. My dilemma is this: Do I go for a purchase now with a 15% deposit, or wait until I get back from tour in mid-2012 and am able to put down a much bigger deposit (25%)? It is not a buy-to-let (although the idea of a lodger is possible) but there is no rush as I live in the mess or with my parents whilst on leave.
    Thanks XX (edited)

    My reply:
    Thanks for asking, there's no easy answer as I don't have a crystal ball but from the information you've given me; here's what I think. Please bear in mind I am not a qualified mortgage advisor so these are just my opinions. If you would like some free advice from a whole of market independent financial advisor, I will be happy to put you in touch with the fellow I use.

    Buy now or wait?

    Mortgage – waiting ‘til 2012: There's no doubt that a larger deposit will help reduce your mortgage payments over time and possibly increase the availability of certain lower rates; so waiting has some advantages from that aspect.

    House prices - waiting 'til 2012: Also in its favour of waiting (possibly) is that house prices have dropped year on year; albeit by a small amount (just over 1% Nationally - which is bugger all really). They MAY continue to fall BUT, I, along with a number of other property pundits, believe that they will not fall much further and may even rise a little over the next year (2011). That being said, housing is and has always been a LOCAL affair. Some areas have large drops or rises due to a sudden change in such things as a major regional/ local employer going bust or, a new employer coming into the area (The Met Office opening in Exeter a few years ago caused a sudden blip in house prices in the area for example).

    House prices and mortgage - buy now: From a mortgage point of view, the interest rates are at a pretty low level at the moment and getting a mortgage should not pose a problem for you. If you were to buy now, you could do one of a number of things including, using the money from the tour to pay off a lump sum when you come back or, make overpayments whilst you are out there. Speak to an expert on that one.

    From the house price point of view; IF you believe, as I do, that the housing market is pretty much stable or stabilising and is not likely to fall any further, then now is an excellent time to buy. There are many properties available where the owners HAVE to sell or, are convinced that the housing market is going to fall further and so, may accept a lower than market price offer - (just a 5% reduction off a true current market value at the £150k you mentioned is £7,500; a significant saving you could use to pay off some of your mortgage/ spend as you wish). As the housing market picks up, these 'bargains' will dry up and the buyers (your) negotiating power is weakened.

    The short answer to your question is that it's a gamble and that, ultimately, it's up to you. Buying a house has always been a good long term investment if you can safely afford any mortgage you have on it. Where people get their fingers burned is when they have to sell at short notice due to a change in circumstances. A VERY rough guide is that house prices double in value every 10 years. If I had some spare cash, I would be doing a buy to let right now but I don't; hence, I’m off on tour soon ;)
    Hope this advice helps. OC
  2. ugly

    ugly LE Moderator

    Good advice, not helpful if you must buy but then littke is. I see that he has a choice. I for one have always been a crap gambler and would buy now. Wiser than me would hold their neerve and wait for the real bargains. There are no doubt many people who are hanging on by their fingernails in properties about to be repossesed and they would probably be easier to bargain downwards but waiting for it to be repo'd and going to the auction may be the answer!
    This yea5r feels like a repeat of 1992 to me only without the financial reserves we had then but with better interest rates!
  3. Very few properties get repossessed nowadays (bad PR doncha know?!) but when they do they can be a real bargain if they are sent to auction - which, in the current climate and in my opinion, most really shouldn't be, as it does not offer the best chance of a fair return to the original mortgagee; something the lender has a legal obligation to obtain.
  4. An interesting question!

    Considering that this guy does not have to buy and has an op tour coming up, I would recommend waiting. He will then have a larger deposit and can be fussier when looking for a mortgage (buyers with low deposits are paying 6-7% when other buyers are paying 3% pa).

    Interest rates have only one way to go (up) and once that happens, then the auction catalogues will fill up with repossessions. I think the property market is, on average, still overvalued. It will have to fall and it can do that in two ways; a steady fall in real terms over a short period or a slow grind over a very long time as inflation shoots up and reduces the value of money.

    Yer pays yer money 'n yer takes yer choice!

    Having written all that: if you find the house of your dreams in the right location and you can afford to run it, then buy it with a 5 or 10 year fixed rate mortgage, close and lock the door behind you and enjoy it!!

  5. ugly

    ugly LE Moderator

    We had our house valued and its fallen 20% in the last 2 years, bit of a shock but we could still get out now with equity and buy something cheaper elsewhere. History tells us that Tories have a habit of allowing interest rates to race away, they seem to care less about the individual and more about the market. labour knew that holding down interest keeps inflationary wage demands in check. I suppose that all they were any good for! Still no hope if you are out of work. That said repossesions should tumble thanks to agreements between Govt and Mortgage lenders (something else to thank labour for) Shocking I know but they have put in place a safety net but seeing how they bought out most of the banks its the least they could, our money after all!