Right time to buy?

There will be an election before there is a house price crash I think...

I imagine the sensible thing to do would be realistic about how much you can borrow. If you borrow a sensible amount then you will be ok even if interest rates go up. You should save a deposit etc - as much as possible. Although not many first time buyers pay cash for their first place - it does happen.

You could look at house price crash site -

Someone has said on here (and there are a couple of threads on the subject if you chose to look in the google.groups archives that long term houses are a safe investment.

You can search this newsgroup with google

Buying a house right now. How safe?

You could always take up viewing houses as a hobby :)

Not really - if you are buying a house to live in and can afford the current price then how will a drop in the market affect you ? The drop will only affect people who want to sell.

Overtime house prices always go up so if you were planning on living in the property for a number of years this is no issue to you.

Can you re-phrase this question ?

but it locks you in to paying say 20% more for an asset than you'd pay if you rented for a couple of years until after the crash - that could easily be 100k less you'd have in 25 years time, that's quite a difference.

Well not in simple affordability stakes, but I don't think it's quite no issue.

Jim.

Well I'm of the opinion that I shouldn't be paying someone else's mortgage by paying rent when I could be paying off my own - I am losing time as well as money, potentially. Due to my wife's job, I may only want to buy a property in the area in mind and keep it for say 1-2 years - 5 years max, so it does really count in my situation at least.

Sorry, I meant how can one possibly attempt to justify a house's price? Obviously in one respect, its priceless, in another, it has market value. If people say a house is over-priced - what other than comparisons as mentioned, can one do to try to gauge if its over-priced in this current boom and roughly how much by? Are house prices always relative to other properties? Or can they be priced according to their own merit and justified individually in a snap shot in time? I guess I'm saying if you tried to ignore the house market's thrusts, could you ever determine in comparison to non-house market thrusts whether a house is worth a certain value? Argh! I'll shut up now, that probably doesn't make any sense either, I guess the answer is that you can never justify a house price precisely or extract its value outside whatever the current housing market trends happen to be.

Indeed and people were saying that here 2 years ago, people who held off buying then have now probably lost out by a 100k because they *didnt* buy. Its a lottery, and just like buying shares you will never be able to buy at the bottom and sell at the top. And its perfectly possible that even after a fall you still might end up paying less in mortgage than you would have in rental.

The main thing is to be sure you can afford the repayments, factoring in likely interest rate rises. It also wouldnt hurt to avoid buying the type of property that does become much less saleable in a house price 'fall/crash/drop', ie stuff like studio flats and 1 room flats.

Sure, but it's not quite a lottery, and there's not instantaneous top/bottom choices, there's whole regions in between - you don't want to buy near the top, and then have to move (for work or whatever) at some other point, or you could simply not want to buy an asset which is overpriced regardless of its affordability. I could afford to buy a nice house at the moment, I'm not going to though, I think they're over-valued.

Except we don't know the situation of the OP - they may be living with parents or sharing with lots of others, and paying considerably less rent than they would be in mortgage payments.

No, I can afford the repayments on a ferrari, it doesn't mean I wouldn't be better off taking the train.

Jim.

And people said that 2 and 3 years ago and prices may have risen 20 or 30% since then. You'll only know if you were correct in hindsight, the phase 'over priced' is meaningless unless no one will buy the property in question. I

Which is which is why i said 'possible'

Crap analogy, but lets go with it...if you are going to buy a car anyway, then you should be sure you can make the repayments.

Sure, but it still means it's worth asking questions, looking at the issues etc. which is all the OP asked.

I think it's pretty clear that there's a greater risk of buying now harming your long term wealth than making it - which was the OP's question.

but which is more likely to make or break me financially speaking for the rest of my life.

Jim.

Buying a ferrari :-)

Rents now are typically 5-6% of the property value, or less, so accounting for insurance, maintenance & transaction costs etc it is probably cheaper renting (ignoring any capital appreciation/depreciation).

There is no way I'd ever buy a house if I only intended to live in it for a couple of years, not only will the transaction costs be very significant when only spread across a couple of years but also all the hassle, and if the market does stagnate it could take ages to sell. Of course you could make money if prices go up 20%, but equally you could lose money if they fall 20% and if this puts you into negative equity you might not even be able to sell.

Actually, it's a pretty good analogy. If you're looking at the possibility that house prices might go down, then comparing it with a car, where at least you *expect* depreciation, is apt.

The bottom line is, do you want to own one?

Hmm, good point. When roughly, is the next election anyway? And if the market shifts, in the past has it tended to go just before, during, or immediately after the polls have been counted? Or all three?!

However, holding out to the very last minute is often perceived as a sign of weakness in support, so the most likely scenario is that the next UK Parliamentary Elections will be held in 2005.

I feel your right and on this occasion Gordon Brown is spending like crazy. Government borrowing does give a short term kick to the economy. When (assuming) they go back in power the spending brakes will come on and a subsequent slow down. New governments and re-elected ones are one of the significant contributing factors to the house cost cycle.

The buy to let sector is is only a small % of the overall market, but given that it is supposedly about investment and return I can see this dying off when interest rates rise next month. A lot a yields are now at 5% (monthly rental x 12 / property value) not including voids. If you can get 4.5% in the bank, why bother with the hassel of a buy to let.

The other issue is that where people are leveraging mortgages to increasing gearing, there are lending rules such that rental income should cover cover

Buy to lets will therefore and in some cases already are generating zero or net income. People are buying purely on the prospect of future price rise, this is the definition of a bubble!

This subject has been done to death -

The average yield is 5.3% which divided by the average BTL LTV (59%) and rental cover requirement (130%) gives a limiting interest rate of 6.91% (5.3 / 1.3 / 0.59)

However, this is all rendered irrelevant by the fact that it relies on a party with a vested interest (letting agents) to estimate the rent.

Daytona

This subject has been done to death -

The average yield is 5.3% which divided by the average BTL LTV (59%) and rental cover requirement (130%) gives a limiting interest rate of 6.91% (5.3 / 1.3 / 0.59)

However, this is all rendered irrelevant by the fact that it relies on a party with a vested interest (letting agents) to estimate the rent.

For those maxing out with 85% LTV, the maximum interest rate would be 4.80%

Turning things on their head by using the current lowest BTL interest rates reveals that a yield of 4.88% is required for a BTL at an interest rate of 4.69% on an 80% LTV. Looking at the regional figures, only London, with a average yield of 4.80% is affected by the current mortgage limits.

Daytona

Because if you choose the right location and market sector, you can keep both hassle and voids to a minimum.

Because most speculative investors make their money from growth, not from yield, and are happy for the rent just to pay the mortgage and other expenses with no profit left over, and then take the real profit from selling up.

Because non-speculative investors, who, say, have no mortgage and own the property outright, are happy to stick with it in the long term, and expect that low yields are a blip, and that historically yields have compared favourably with deposit interest.

Because the tax works out. If you can get 4.5% in the bank, as you say, you still get taxed on it so you only keep 3.51% or 2.7%. But if you get 5% yield and most of it pays for expenses such as loan interest, you don't have a lot of profit left to be taxed. You defer all your profiteering until you make a capital gain, and if you plan carefully, you can minimise the tax leak there too.

The 130% rule is designed to protect cashflow for when there are voids. It's got nothing to do with gearing per se. But of course this rule tends to discourage high gearing where yield is tight.

Dampen, perhaps, but not choke, if investors gear only modestly.

Not quite. Because BTL is only a small proportion even of the marginal market, prospect of future growth is not the only thing fuelling the growth.

Still, to paraphrase your subject line, BTL is to an extent already dead. But it's not because of choking by interest rates, it's because of market saturation. There are too many properties for rent chasing too few tenants.

Quite. Lenders tend to require borrowers to get a letting agent's written confirmation of likely expected rent. This is "independent" in the sense that it's not just the borrower's own wildly optimistic expectation. But even so, agents are all too readily persuaded to be "reasonably" over-optimistic themselves.

If an agent says you should be able to get £525 a month, you might be lucky to get £450.