...or perhaps not buying a house after all

[ciphergoth]

...at least for a while.

Met up with babysimon at BU last night. He made a *very* persuasive case that now is not a good time to buy. Various folk made the opposite case, but his was backed up with detailed quantative historical data. I'm sore about it, but I'm convinced. It's sad but at least it means I'll be able to get a rather better property for the same money when the crash comes.

Just spoke to an investment advisor, who said if I was only investing for a year or so and then hoping to buy property, I should put my deposit in bonds. I'll also of course put the maximum I can into an ISA. It'll keep 'till I need it.

So I guess I'm looking to rent once again... but we're not in a hurry.

Comments

[purplerabbits.livejournal.com]

Hmm. I wish there was any chance of a crash in Edinburgh, but from what I've seen we'd be as well buying now as later...

The blip of 1988-89 ...

[autopope.livejournal.com]

I got out of my first flat just in time in 1989, about one month before the market (in Leeds) stalled. Interest rates had gone up 3% in about six months, and my mortgage repayments had doubled in the 15 months since I bought the bloody place. As it is, I count myself lucky -- blind luck, as I had no idea then what was coming next. I later knew one couple, in London, who'd bought around the time I was selling, a four bedroom family home. They had a quarter million in negative equity, then she lost her job in the recession that coincided with the bubble bursting (can't think why that might have happened) ...

This is the wrong time to buy in the south east, where the average age of first-time buyers has just hit 34, where couples with a combined income over 40K can't get a mortgage on anywhere habitable, and so on. In Edinburgh, prices apparently rose >25% last year, so there's still some slack to be taken up -- but I think we're heading for a major crisis.

My project for the next couple of years is making capital repayments on my endowment mortgage as fast as I can (thank you, Standard Life, for crapping all over the policy that was due to pay off the mortgage in another 16 years -- luckily I was conservative when I bought the flat, and I can now afford to dig my way out of the trouble caused by the investment industry's slow-mo collapse). Then, if I can keep the habit up, I intend to start buying a new place in about, oh, 2-4 years' time, when they're about 20% cheaper than they are now.

(If they're not 20% cheaper, I'm going to be in real trouble with the book collection. Anyone know how much it costs to rent a small walk-in library?)

PS ...

[autopope.livejournal.com]

The four horsemen of Nigel Lawson's Apocalypse in 1989 were:

* Lots of buyers lying in order to mortgage themselves to the max

* A prolonged period of house price inflation (driven by enthusiastic buyers coming on the market for the first time, expecting to make a killing)

* Interest rates going up sharply after a long period of gentle decline

* Home-owners at full stretch going into default on their payments, combined with new buyers being unable to enter the market, causing prices to stall and then fall (reposessed houses go cheap), leading to more people going into negative equity and handing the keys back, causing more houses to come on the market for knock-down prices, leading to ...

Does this picture sound familiar? It's fifteen years since the last time in the barrel; I reckon we're about ready for another session.

[ajva.livejournal.com]

Welcome to the Bear Side, Luke. ;o)

[wechsler.livejournal.com]

I *really* wouldn't buy now; I think Simon's exactly right here.

[ex-pipistre.livejournal.com]

Northern Rock do some pretty good rates on fixed-rate bonds. Well as good as it gets with the current crap interest rates. Even better, there's not much of a difference in interest between 1 & 3 year bonds, so it's a good chance to invest for a year and then reinvest if interest rates continue to rise :)

[ergotia.livejournal.com]

I just think renting is crazy, constantly throwing away money to pay your landlord's mortgage. There are many more reasons to buy than investment, and if any of us *knew* what the market was going to do we would be billionaires and it would all be irrelevant anyway. I guess I am going to have to get Simon's detailed rant soon....

xxxxx

[ergotia.livejournal.com]

Also, if the crash does come and is as bad as you all say, you are *not8 necessarily going to get a beter place for the same money. Firstly you may lose your job and salaries will go down across the board, and secondly lenders become much more restivtive about who they will lend to and on what terms.

Not trying to talk you into buying, just not convinced.

[chillies.livejournal.com]

I just think renting is crazy, constantly throwing away money to pay your landlord's mortgage.

The upside is one doesn't have to sleep on the street :)

What annoyed me over the last couple of years were adverts selling mortgages for buy-to-let properties. As a renter, seeing claims that rents from buy-to-let can cover the mortgage and provide some income started to piss me off when it was impossible to get a foot on the ladder in London.

[babysimon]

claims that rents from buy-to-let can cover the mortgage and provide some income started to piss me off

Fair enough. The fact that this is unlikely to be true may provide soem consolation.

[ergotia.livejournal.com]

Why do you say that? Rent for a property the same size as ours in Streatham is currently between 3 and 4 hundred a month more than our monthly mortgage payments.

[boyofbadgers.livejournal.com]

When did you buy your property?

[purplerabbits.livejournal.com]

Is your flat mortgaged up to its current sale value, though?

And landlords have other expenses, in theory (though lots try to minimise them), and even the singiest will have months when the property is empty and generating nothing.

[ciphergoth.livejournal.com]

Note, though, that because house prices have gone up so much since you bought, someone buying now would have much higher payments to make.

Not saying you're wrong, just factoring it in.

[lovingboth]

I think he's right, but a crash is an 'if' not a 'when'. With low interest rates, mortgages on stupid prices at silly multiples of earnings remain affordable.

I wonder if there's a financial derviative that enables you to make a bet on house prices? It'd be very interesting if so, because you'd be able to cover the risk of prices falling after you've bought.

Bonds are less of a good thing than they used to be. Because of the stock market losses of the past few years, lots of insurance funds have bought large quantities of bonds, so the price has fallen.

How much of risk do you want to take with the money?

Re: PS ...

[sqferryman.livejournal.com]

The only thing missing this time round is a financial pundit saying that there are going to be two types of people in the future, those who are living of the wealth in their homes and all the rest who didn't buy in time. Well look how accurate that turned out to be.

Don't forget that this time round the crash will probably be a lot harder. Any mortgage lender with a reposessed property on their books will dump it as quickly as possible to avoid the glut that happened last time round. And the buy-to-let punters are barely making any return on capital at the moment from rents. If prices go south and returns follow them then a lot of these properties will end up on the market at the same time.

Like the autopope, I'm staying where I am and hoping that the bust washes over me. Buying know looks like suicidal insanity.

[sqferryman.livejournal.com]

Renting isn't crazy when you realise that your landlord has assumed all the risk of capital depreciation for the property. 30% dop in property prices mean nothing when you're renting, except cheaper rents when landlords are fighting for tenants and against a glut of unsold properties on the market.

[valkyriekaren.livejournal.com]

Yes, but presumably if you were letting that place, you'd have to be living somewhere else and paying rent/mortgage on that, unless you owned it outright.

[babysimon]

I wonder if there's a financial derviative that enables you to make a bet on house prices?

You used to be able to short house prices by spread-betting. The trouble was, as with all shorting it was very time-dependent. You had to predict exactly when the crash would happen.

i am bitter.

[atommickbrane.livejournal.com]

Yes but I'm sure the hassle of being a landlord fades somewhat once they WIPE THEIR TEARS AWAY WITH 50 POUND NOTES, THE EVIL RIPOFF BASTARDS, o where o where are those deposits over the years, o where o where goes my money which I could be saving, OH IT'S IN YOUR POCKETS? Marvellous!

[ajva.livejournal.com]

There are many more reasons to buy than investment

True, but there are also many more reasons to rent than just not being able to buy.

I actively choose to rent because I like a) the flexibility (can move whenever I want without having to sell a place first) and b)the minimal stress (other people sort out maintenance, from little things like washing machines breaking down to big things like fixing roofs or dealing with subsidence).

Don't underestimate the advantages of renting as opposed to buying at this point in time, particularly now there are so many desperate landlords. Things have changed a lot in the last few years.

Re: i am bitter.

[djm4]

Mind you, although the only tennents I ever had sold all my furniture (including my cooker), wrecked the place, never paid me a penny in rent and pissed off my neighbours. They'd have been bloody hard to get rid of, too, if it hadn't been for the fact that the police came for them at 5am in the morning (breaking down my front door to do it).

Needless to say, being a landlord is not a game I ever want to get into again.

[ergotia.livejournal.com]

1995, but I have to be honest and say we did not think of it as an investment in any way - just really fed up with renting and finally had a deposit together!

pedantry alert (sorry)

[ajva.livejournal.com]

I have to take issue with the logic here.

You say that he might not be able to get a better place for the same money.

But what you then give is two reasons why he might not be able to raise the same amount of money, rather than why the same amount of money wouldn't buy a better place.

What if he doesn't lose his job? What if he was never planning to stretch outside the traditional lending criteria in the first place?

These 'what if?'s don't seem too big to me...

[ergotia.livejournal.com]

Nope, not mortgaged up to current value, prob worth twice the mortgage.

Yes landlords have other expenses but I think buying to let probably does cover your mortgage depending on equity in mortgaged property and other variables.