Hi All,
I am on the verge of buying a bigger house which represents a fairly significant increase in the amount I am borrowing and monthly repayments. It's been something I have been planning for a long and can easily afford it.
My question is following all the Brexit shenanigans is it a good idea? I know none of us have a crystal ball but interested to get some views on how people think the housing market might change over the coming months.
Ultimately I don't want to push the boat out and find that when I come to remortgage in a couple of years time I have lost a bunch of money/equity and end up getting stuck with a higher rate because my LTV has dropped.
Any thoughts?
Cheers!
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So difficult for anyone to forecast what may or may not happen. Fixing in for a longer term may help resolve some of your worries.
My five year fixed ends in 2020 and I am already putting an extra bit of money aside each month to try to offset any difference in my LTV if the market/rates change considerably. Fingers crossed!
I wouldn't worry.
You had already planned and can afford it.
Ultimately property will continue its upward climb.
By the time we do come out (If) the markets and everyone else will be used to the idea so don't see an upheaval then.
Live for the day, you don't know what's round the corner!!
I'm not sure I'd be worrying about Brexit in the short term if as you say you can afford the new repayments.
I'd be more worried about the long term given the average house price is now a major multiple of average salary - that is when prices will have come down to more realistic levels as no one will actually be able to afford to buy a house the rate it is going. Anyone that thinks house prices will continue to rise indefinitely is in for a rude shock IMHO
It doesn't matter that house prices are so high at the moment, interest rates are low enough to make them affordable still.Originally Posted by Mr Stoat
Personally I can only see them rising in the short to medium term as there's nowhere near enough supply to meet demand. Until there is then the prices will keep on rising.
As you said, it is not about affordability but about the extra money you will lay down between your current house and new house. One way to look at it is the risk on the additional outlay. If it is another £100k and then prices drop by 10% (for example), then your risk is likely to be around £10k (a lot of speculation in these numbers I know!)
What is the risk you are willing to bear in terms of drop in value - you will have this impact on your current house too.
er thats what everybody in ireland thought 8 years ago
We are looking to buy, but are concerned that houses are now showing on our daily rightmove alerts with hefty reductions. Started noticing this within the last couple of weeks, and our search area is all over the south west so not just a localised issue.
I was talking to an estate agent recently who said their main problem is lack of stock. Stuff is moving fairly quickly in my area but there has been very little new for weeks and apparently little or nothing in the pipeline.
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You know what is getting forgotten is that houses are for living in and there are no guarantees in life ( apart from death and taxes) so if you can afford it and it meets your lifestyle expectations then go for it and if down the years you make money that is a bonus
I would agree with this - people are still going to live in the UK post Brexit although possibly not quite as many as before.
I certainly don't view this as an investment but at the same time don't want to lose my shirt
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I guess you're a youngster and don't recall the late 80s and early 90s.
A lot of folk lost their shirts and the housing market didn't recover for a decade.
We bought our first property in the 80's and remember interest rates at 15% and our flat going from £43k to £70k to £58k over about 4 years.
If you can 'easily afford' the house and are planning to stay for a long time then personally I would go for it. As long as you aren't forced to sell a drop in value for a few years isn't the end of the world. Then again I've taken a few risks with homes over the years and it's worked out. Only you know your appetite - no point stressing yourself if it isn't in your nature.
Ultimately
In house price terms a decade is but a moment, a blip.
Personally I would go for it. We bought our first house at near enough top of the market just before the crash in 2008, the price fall was cushioned by some improvements we'd made over the years plus we were paying out £9k/year in rent before which was dead money. It's since recovered and is now worth more again.
Everything ultimately goes up due to inflation, it doesn't make it a good investment.
If the market is at a top, and realigns to earnings over the next 10 years then it'll take a very long time to come out ahead inflation adjusted. Or we continue not meeting demand and prices keep rising and it's all rosy.
But a decade is very significant in your 35-40 year potential earning period.
I think it's a good time to buy isn't it?
It's not a good time to sell.
Good luck everybody. Have a good one.
Only if you need to realise the asset within that timeframe.
We have been thinking about this topic as well. My discussions yielded the following points:
Reasons why prices will fall (at least in the short term)
- Uncertainty on what is going to happen over the next few years
- Possibility of recession / reduction in economic growth
- Potential for greater unemployment - or at least for a reduction in the growth of employment
- Some sections of buyers pushing decisions out until Brexit has happened (particularly in areas where there are a lot of people from the EU living)
Reasons why they will not fall / continue to grow
- Fall in value of GBP makes UK property more attractive for foreign investors (in some areas e.g. Central London)
- Still a fundamental mismatch between demand and supply
- People still buying to live in - and thinking of them as long term investments
- Borrowing costs are already low and potentially falling further
Which of these arguments trumps the others is anybody's guess - and definitely depends on which area / segment of the market you're considering. Industry commentators (for what they are worth!) seem to indicate anywhere between a 5 and 20% fall. For me, the price reductions we have seen pointed to at least a short term fall.
We backed out of our purchase because:
1. We didn't need to move now - anytime in the next year or two will do (and no one is talking about a price increase!)
2. If prices do fall, we could buy the same / similar property for a lower price next year
3. If we stretched ourselves and prices fell, we could be left facing a situation where we aren't meeting LTVs anymore
If the OP is moving to a bigger house it is unlikely to be for a short period. As you move up the housing ladder you tend to spend longer living in each property. I would therefore suggest the risk of losing a significant amount of money in property over the longer term is minimal (and the OP states the repayments are affordable) also interest rates aren't going up anytime soon so I wouldn't stress about it and move. We all need somewhere to live.
But's that the issue, a lot of people do. Mainly those in 1 - 2 bed flats.
Life moves on quickly and suddenly that 1 - 2 bed flat that was perfect as a bachelor/couple is highly unsuitable for a young family.
If house prices fall and you find yourself in negative equity, no chance of remortgaging, so if the worst happens you're stuck with depreciating asset that no longer suits your requirements, and there's very little you can do about it.
Gearing is great when asset prices rises, but works in reverse and is like spread betting when asset prices fall.
If you want a bigger house then go for it.
You can afford it.
No good just sitting there stewing about whether prices are going to change.
It wouldn't stop me that's for sure.
Cheers,
Neil.
We (IFA's with mortgage practice) are seeing a lot less people go for investment properties due to the tax hike. Home purchases are similar to where they were before and we think that will continue. House prices between 150k to 250k are moving very quickly, 250k to 500k as normal, but over 500k is slower than normal.
I'm fairly sure that interest rates will stay extremely low for the foreseeable future - no I can't guarantee that but the industry couldn't take a large hike. We may never see the type of 12%/15% rates again as the world of finance has changed.
I also think a 'home' is totally different to a 'house'. You live in your home every day of your life, as do your family, it's not really an investment as you want the nicest place to live as possible. You only ever make money out of your home if you downsize. Funny thing is people see it differently. Personally I'd buy the best possible house as the youngest age I could afford as one thing is guaranteed for 95% of people, 20 or 25 years down the line you'll think it was the best financial decision you ever made.
That is sound logic if you are a first time buyer (apart from paying rent in the interim period which is dead money).
However, if prices fall and you are an existing property owner with equity the next place you buy will also be cheaper so its all relative. It's only a problem if you are forced to sell.
Actually, we own our current house but don't need / want to sell in order to move. In an ideal world, we would buy the new property while prices are low - and sell the old property only once prices have risen again.
So get a massive mortgage?
Nice position to be inIn which case, I would have done the same!
We're currently in the process of buying a house which is over twice the cost of the one we are selling. We're carrying on with the sale/purchase despite Brexit on the basis that we want to move.
The way I see it, prices may go down but if they do the price of both houses will go down (ok so it will be a percentage so the more expensive house will go down more). Prices may also continue to rise (demand likely to stay reasonably high and I think most BTL owners will ride it out rather than offload) or remain stagnant in which case I could be worse off or have delayed the move for no reason. I'm also of the opinion that a lot of the uncertainty at the moment is due to people not knowing what to do and holding off on things such as yourself and I think that these people will at some point inevitably do what they would have done before Brexit.
You could wait forever for the 'perfect' timing which may never come and you may not know when it arrives even as you won't know when things might go back the other way again. Anything anyone says on here or even 'industry experts' can be taken with a pinch of salt in my opinion as no-one really knows what's going to happen, it's all just speculation and most of us aren't that great at it or we'd all be reading TZ-UK from our private yachts (unless I'm the only one not bobbing about on a crystal blue sea somewhere!).
I guess in all the waffle I've just written I'm just trying to say you should just do whatever you would have done before Brexit, life carries on.
Paul.
Well that's the issue isn't it; whether to keep the 50m super yacht or upgrade to the 75m model?
House prices can't rise (above inflation) for ever. That's impossible. They simply become unaffordable.
The skill is in knowing when that is, and what impacts it.
The number one influence is the availability of credit. So when money is available and cheap, prices will rise.
How long we have cheap money is anyone's guess.
Completed on purchase this afternoon - yea
This was made possible by the weakening of the £ for me. But I guess I count as a foreign investor.
Anyway off to celebrate but given my wife and I are currently in different countries and neither of us is in the UK we won't be toasting in the new apartment :(
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If this is likely to be a long term purchase then I don't think Brexit should be a factor. If I was looking for a short term gain then no, I wouldn't be purchasing now. I would be reluctant to stretch myself to by a new property, particularly now but fortunately this is not the case for you.
I bought my first property in November and had I known we were going to leave the EU, I might have delayed this. However, I am not planning on moving soon, can comfortably afford it and so am not particularly concerned. I have also saved a lot in rent over that time which is relevant.
At some point your shirt will not be so important.
And sometimes my shirt will be a jumper.
It's not how much the house costs top line it's how much it costs each month. If £1k a month got you a £100k mortgage house prices would be £150k. If £1k a month got you a £1m mortgage then average prices would be around that figure. The availability and cost of credit are everything.
The other thing to bear in mind is that people are willing to spend more and more of their household income on housing and as we move to 50% of household income going on housing, combined with low interest rates (which now have to stay low forever to avoid massive defaults) then the combination of more household income going on housing, low interest rates and high multiples meaning higher mortgage amounts being lent and bingo - house price inflation. Brexit will INCREASE house prices not decrease them particularly if the BOE lowers interest rates and pumps money into the banks to make sure they lend.
My source on this is an economist called Nadeem Walayat who has demonstrated almost clairvoyant abilities to predict the markets and also elections - he was bang on the money with the Brexit vote too. Worth checking him out - Google Nadeem Walayat and Market Oracle
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This might make interesting reading
http://www.marketoracle.co.uk/Article55767.html
I'd add that confidence is also a crucial factor. My own guess is that we're currently in a bit of a 'phony war', in which interest rates will fall further without much immediate evidence of a major Brexit-induced slowdown, and so - outside London and possibly the SE - we will probably see price stability, and maybe even modest gains over the next 3-6 months. But, beyond that, it's really anyone's guess...
Last edited by simoscribbler; 27th July 2016 at 08:48.
Whilst I agree with a lot of that it misses out three critical points:
1) In time house price inflation will outstrip wage inflation to the point where the mass market of house buyers can no longer afford anything - using your example about of saying that people are spending 50% of income on housing costs, it will get to a point where that % is too great to bear and wage rises will not increase sufficiently to allow people to buy. Price will then drop, and IMHO that will happen in the medium to long term in the UK.
2) Confidence - the market will stall when buyer confidence is lost and that could be for any number of reasons (with Brexit that is likely to be job security, alternatively it could be self fulfilling if house prices rise forcing wage rises leading to job migration to lower cost countries)
3) Sentiment - will the younger generations really buy in the mantra that one's home is one's castle, and the bigger the castle the better, especially given the nature or work moving around and the percentage of income that has to spent to afford a house? Or will the market change over time to more of a continental rental model with rent controls (the government is already chipping away at BTL with less advantageous tax arrangements) and younger folk being happier to live in much smaller "living pods" and thus free up funds for other things?
Agreed, they can't keep rising forever as there will come a point where they should rise in line with wage inflation but we are quite a way off IMHO
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Really? Well I guess that depends where you live and what kind of property.
I own a very ordinary 1 bed flat that will soon be let out as I'm moving in with my partner. Paid £205k 18 months ago, this week one of the flats downstairs (small block of 14 flats in leafy part of SE19 London) sold for £325k+ (was offers over so do not know exact figure) it was being filmed as part of that awful Krusty woman's Location, Location, Location program and was bought by the person featured in the program.
Things may be a bit different in the grim north but anything reasonable does not hang around long in the SE as there is high demand.
No one has a crystal ball, but I am in the same position and have my place on the market; I've just dropped £10k to try and attract a buyer and I have an offer on the table for a more expensive house.
My view is I have lots of equity in my current house and tbh am not fussed even if prices fell back a bit as prices are all relative as long as we're not thinking of selling up wholesale and moving overseas. However the RICS are forecasting after an initial small decline akin to back in 2008, after 5 years prices should be up on todays prices by a few percent.
I'm just going to get on with it and take the view what will be will be.
SE London, esp the leafy bits, has been correcting with a vengeance, ever since the Overground opened. The flats in the block opposite me have gone from 240k to 450k in less than 2.5 years.
What in history makes you think that.
Early 1990s and interest rates nearly trebled from 6% to 15% causing massive defaults and negative equity.
If inflation ever did take off again, who do you think the Government would protect. Pensioners who all vote and are doomed by low interest rates and high inflation, or young folk who don't vote but are doomed by high interest rates.
Don't forget average interest rates are around 5%, and where comfortably at this point as late as 2008.
If you plan financially on reversing to the mean, you'll be fine. If you plan on 0.5% forever, you playing the casino.
Pretty much what happened to me more by luck than judgment, the overground had already opened but having been under the gentrification radar prices were lower than surrounding areas so all that's happened is there is now parity with Herne Hill, Streatham, Sydenham, bits of Dulwich etc. All helped by artisan pizzeria's, coffee roasters and craft beer pop-ups. When most people tak of 'correction' re property they usually mean price falls! Similar things happening out east with crossrail.
But it's all meaningless when you want to move down the road to a bigger property as they too have risen accordingly.
Like anything it depends where you are I suppose. I'm trying to by at the moment and have been down to the last two three times now - yesterday I missed out and I was £10k over asking price.
Supply and demand - houses where I live are on the market for a week to two weeks tops. Annoying....
Every 'prophecy' done before the Referendum day can be thrown out of the window. For example: the day after, the Dutch stock market went down 20 points and all gurus went "oh, it will drop further" Today, the stock exchange has reached the highest point in 12 months... Moral of this story: no one knows what will happen!
Another example: last week, Dutch newspapers wrote that the US allows British beef to be imported into the US for the first time in 20 yrs. (Had to do with the Kreuzfeld Jacob affair). That looks as if British government and British entrepreneurs are looking for a way to overcome 'thresholds' when it comes to doing business with or without the EU.
This new era -if you like the current situation or not- can be the beginning of something new; British engineers have been inventing useful stuff since the 18th Century! And perhaps it's time to start inventing once again, making use of the situation and come up with new technologies, services that can be exported.
Overhere in Holland, there's a big difference between buying a house in Amsterdam and every other part of the country. People in Amsterdam are fooling themselves about the 'need' to live in that town! H*ll, 15 mins by train and the prices are 30% lower; 30 mins by train and prices are 50% lower... But somehow, that doesn't ring a bell.
In short: do what you think/can afford. And stay away from (over)inflated prices.
Menno
Last edited by thieuster; 28th July 2016 at 08:22.
where is it?
What isn't being factored in is the methods with which people are getting on to and up the housing ladder which helps sustain prices well above inflation.
Clubbing together with the girlfriend to have greater purchasing power is common place, as is inheriting property from parents whose generation experienced phenomenal price rises in previous decades.
You only need to inherit granny's old bungalow and get a x4 mortgage with the Mrs and suddenly you're in for a £500k / £600k / £700k property or more.
Last edited by funkstar; 28th July 2016 at 16:06.
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