would you invest soon,if you were a 1st time buyer?

Discussion in 'Finance, Property, Law' started by olddearhunter, Apr 27, 2006.

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  1. would you invest in the next year or so if you were a first time buyer?

    Im interested to know what others think.

    if you were thinking of buying property...would you do it in the next year? from a first time buyers perspective?

    do you think property prices will stagnate or drop?

    obviously IF you knew the answers for definite you could make a fortune in the property market ! ..but im just interested to hear peoples views and reasons behind it...

    im saving in order to put down a large deposit...hoping to have nearly 20k by end of 07, mortgage and use property for my own use for 12-18 months then rent out.
    all constructive advice appreciated greatly.

  2. There's one key factor that you need to consider - Location, Location, Location
  3. in_the_cheapseats

    in_the_cheapseats LE Moderator

    Fraser is correct...but as you are likely to be limited to close to where ever you are posted you may not have the choice.

    My view is that the market will have steady growth in the short to med term and I can't see prices radically dropping at all. My own view is that prices will continue to outperform inflation and overall property is a less risky way of investing than shares. The general opinion (although not held by everyone) is that due to the lack of housing and of its construction, rental property will remain a good investment, although the big money made in past years are probably past.

    Have fun

  4. Look at what is happening with interest rates, jobs and blocks of flats in large cities. I would say "no" but that is my view.

  5. The law of supply and demand will keep property prices boyant. Our population is increasing at a much faster rate than our housing stock.
  6. BiscuitsAB

    BiscuitsAB LE Moderator

    If you are buying an investment then "market timing" has nothing to do with your descision. It is "time in the Market" that counts.

    You can't predict when the market is at its top or when its at its bottom, you can have an educated guess depending on knowledge of your chosen market but thats about it.

    The most important thing is "Time in the Market" or in plain english how long you own the Asset or investment for. Markets are cyclical they go up and down and everywhere in between, Time is the factor that will make you money on an investment in the end, the longer you own an investment the more its likely to make you. If you do buy some where and rent it out the best thing to do is pay off the mortgage as fast as possible. If that means putting some extra cash to the mortgage every month then thats what you shoul be doing.

    If you double the mortgage paymetns on a 25 year Capital and interest you will pay the mortgage of in Roughly seven years. Once you've done that you leverage your capital and buy another property reapeating the process until you have as many properties in your portfolio as you want.

    Investing in anything other than NSI ( national savings and Investments) isnt guaranteed. With more and more people buying rental properties the yield in certain areas is reducing, yield being rental income set as a percentage against Asset value. The days of making a fast buck on property were about 3-5 years ago in this cycle. You can still make short term money if you buy in the right place, at the right time and the right property.

    If you are after a quick buck the best of luck to you, you may do it you may not but the chanes are lower now that in the recent past. If you are looking for a long term investment then property is certainly worth holding. If you are think of buying now purely to hold an investment have you considered property funds?

  7. I'm a first time buyer but there is no way I'm putting money into property right now.

    We are heading into recession, with consumers morgaged to the hilt, our trade position gradually worsening and government debt reaching its ceiling ending the boost we've had from massive expenditure.

    UK Housing is considered amongst the most overvalued in the world but price rises have levelled off in the last few months. A lot of this is from people buying houses to rent out. Rental prices appear to be steady but as fraser says location location. If you take a look at rents in different areas apart from a few really expensive areas where demand is still high rentals are are falling. As rents fall, property prices are going to fall as people stop investing into them. If I buy now its almost certainly at the top of the market.

    Even if it doesn't fall and instead stagnates at this level then you still loose money from the transaction costs, the mortgage, inflation, stamp duty, legal fees, etc... You'd loose quite a hefty amount, especially if you consider you could have made money from it if you just stuck in the bank.

    So, either housing prices are going to fall or they are going to stagnate from here... either way I'd loose money. I'm waiting on for a few years before I buy.
  8. in_the_cheapseats

    in_the_cheapseats LE Moderator


    Just remember the last "crash" in the housing market in the 90s was a drop in value of property of just 5%. Hardly a resounding crash.

    Times were very different. Interest rates were running at about 15%. What happened then was the value of property was static for a period until interest rates started to drop to levels more than double what they are now. People got confidence again and started the current buying phase.

    Wait if you will but even if prices don't go up, your own financial position is unlikely to improve beyond the rate of inflation of say 3%. Property is likely to outstrip that for a good while yet, putting you bind the curve unless you can get a pretty good return from other investment types, which is possible but you might need to be a bit adventurous.

    Just remember the more pessimistic speculators have been waiting since '99 for the next great crash - it hasn't happened yet.

    Biscuits piece above is a good one. Time in Market is key. You need to own to be in.

  9. Cheapseats...

    I see what you mean but using the economists figures not mine:

    'Suppose you bought a flat in London for £500,000 ($870,000) and sold it five years later for the same amount. You might think you've got your money back; in fact, you have lost a tidy sum. Suppose that you put down a deposit of £50,000 and took out an interest-only mortgage. Stamp duty, legal fees and other costs on the purchase were almost £20,000; five years' maintenance cost £10,000. Your selling costs were then, say, £15,000. Of your £50,000 deposit, you now have £5,000—a 90% loss. Had you simply put the cash in the bank, you would have made 20%.

    Worse, because rental yields are so low, you have paid more in interest over the five years than you would have done in rent.'

  10. As long as you aren't in negative equity then this is all academic. Little in the long-medium term financial forecasts suggests that the economic conditions including interest rates will lead to this. Furthermore, the UK economy is so utterly entwined with property ownership (pretty unique in Europe) that every government will try it's best to make home ownership as do-able as possible. Gordon Brown is about to find this out the hard way.

    Buy the worst flat in the best street (not the opposite, schoolboy error), do it up yourself if you can (you will save mega-bucks), choose somewhere with a sound rental market (schools/ educational establishments or anywhere half-decent in Greater London) and sit on it.

    Job done.

    Look at the historic returns on property as opposed to almost any other investment vehicle open to a non-millionaire.
  11. Cheapseats,

    I cannot allow you to use data that you appear to have plucked from thin air. I know a lot of people who came badly unstuck in the mid to late 80s because they believed the mantra that "property can only go up".

    If you go to the Halifax site, you will find all the indices generated by them (they have a longer series of data than anyone else):

    Halifax Bldg Soc

    There is a House price calculator, and this was the result for the first figures I entered.

    An average house, in the East Anglia region valued at £100000 in 1989 Q3 would be worth £77283 in 1993 Q3.

    A change of -22.7 percent.

    Recalculate /unquote

    Add in the change to the RPI during the same period (also available on the same site) and you have a real drop in prices of about 30%.

    If you had a job that was safe, or you didn't have a mortgage, or you could sell other assets, you survived. Many thousands of people didn't survive, which is why the Conservative Government was booted out in 1997 (they should have lost in 1992 but Labour, under Kinnock, fouled up!).

    Elsewhere on the site, you will see that over the last 25 years, the ratio of house prices to average earnings has varied between 3.0 (1992) and 5.4 (1989 & 2005). Look at the data!

    There are two reasons for owning property; somewhere to live or an investment.

    :arrow: If you need somewhere to live, you have a choice to rent or buy. There are good reasons for each of those and that is a personal choice. If you buy, just make sure that you can afford the mortgage if rates increase by 2 or 3%. Base rate has twice reached 15% in the last 30 years.

    :arrow: There are good and bad reasons for investing in property - but property is illiquid with high transaction costs and time delays. The gearing of a mortgage works both ways - up and down!

    I agree that buying the property in which you live is a very good idea, if your personal situation is stable and you can afford it. But rushing back from Germany in order to purchase a buy-to-let at the moment (as people are doing) is a bit daft! And don't get me started on the property market in Germany which has bombed since reunification!

    I agree that British property has done very well over the last few years (whereas German and Japanese property have both bombed), but I question the current wisdom that it will continue to do so. If interest rates keep rising and the economy deteriorates, the housing market will crumble. And this time, it will crumble at a much faster rate, IMHO!

  12. thank you all very much for your replies. Biscuits...I will definitely be trying to pay off any mortgage early and using for collateral in any new mortgage. im definitely not after a quick buck.

    I am looking for an investment primarily so that when i leave the army i own a house outright, or very little mortgage that a gratuity would cover and give me a bit more on top. If I can squeeze in two properties, then I am quite happy to use it as a retirement fund.

    tbh it scares the sh1t out of me thinking of going to have to leave the army with no home of my own!

    The way I see it, purely for BTL, there is little yield for the risk...however... there is the option say, of having a subsidised mortgage. Living in cheap SQs or MQs (much much later...), i can afford to buy elsewhere, I wouldnt mind buying somewhere and still having to top the rent to cover the mortgage say by as in effect it is still saving me to pay full whack.in effect i would have to do this if interest rates rose to 7-10 % anyway. if i can afford to overpay i will !

    my strategy is this...
    Im not going to be buying a studio/one bedroom flat for 100-120k thats for sure....

    my preference would like to either go for a 2 bed flat/apartment in a fashionable/nice area of a reasonably large population centre (bristol, southampton, cardiff, etc, or a 3 bed house near schools for families with a reasonable commuting distance to a large city, or i could go for somewhere cheapish and somewhere i dont wish to live eg scotland( i used to prior to joining the army before anyone spouts off :) ), and buy a flat which you can still do for under 70k, 5 miles from 2 large towns, a university, , and hopefully get it paid off quickly... after that initial painful period it should be paying me a couple of hundred quid a month.

    is this viable?

    but it is academic until i have saved up my deposit !
  13. Just a tip. Look for areas that are just about to go through massive regeneration packages. Lots of places in the NW have been given substantial EU grants, Liverpool (billions), Blackpool(over 100 million) and Manchester(lots) just to name a few. You can still pick up houses for 30-50k in these places. Getting your hands on these mean the mortgage is very manageable even if things do take a turn for the worse, more importantly the potential returns are big.
  14. I would say either buy now or or wait until around christmas time. A lot of properties have gone on in the summer and by the time christmas comes around people start to panic, thus willing to drop their prices quite a lot. As for the market stuff, as long as you do your sums and buy what your rasonably comfortable with, then it will always be an investment. Remember if your property price goes up, then so has everyone elses, its relative. I think the chances of a major drop are minimal, and even if it does, it always builds itself back up in the long term and by ht sound sof what you are doing, your looking long term!

    To "win" in the property lottery, you have to be in it to win it. The Best investment is probably a self build. You can build a massive house for 150k and sell for a fortune. A particularly good idea for a first time buyer with no housing needs as such! Get watching grand designs and the like for ideas!

  15. You could always invest in a property fund rather than an actual property. Depending on how much you have and how long you can tie cash away. A few advantages are that it is far more liquid (depending on redemption clause) the investment will be diversified across the UK or across Europe or even across the world. Can also be diversified between residential/commercial/other property funds/Traded Endownment Policies etc. No hassle with repairs, legal fees, bad tenants etc but can still take advantage of property as an asset. Can certainly be less volatile in an unpredictable market. Also European property funds can benefit from former eastern bloc price rises which are booming right now.
    Downside is Capital Gains Tax (although you risk this if investing in a second property), possible redemption periods, obv prices of an investment can fall - just like the underlying properties can.
    Speak to a qualified IFA if this is something you would consider.