UKC

I'm interested in people's thoughts regarding buying a house in these uncertain times.

My situation is I'm ready to buy a house which we intend to stay in for a long time, but I'm a little concerned about brexit causing a bit of a house price crash. In my mind, the mechanism by which this may be likely is... no deal brexit leads to tariffs on goods, tariffs inevitably increase prices on goods, increased prices=increased inflation, inflation is controlled by bank of England raising interest rates, interest rate rise causing increasing numbers of people defaulting on their mortgage (particularly with household debt at very high levels), glut of housing sales causing crash.

Having said that, presumably if I did secure a mortgage at a low rate now, that might offset the house value drop somewhat should interest rates rise in the future??

I'm probably worrying over nothing, but it's a lot of money to get worried about, so I figured it's worth thinking about.

I'm hoping someone with a better grasp of economics might settle my mind, so if you have any thoughts, let me know.

So... What would you do, buy or wait?

Thanks,Simon. 

In reply to The Norris:

Don't think of it as a monetary value. It's somewhere to live. Rental rates are likely to be affected too by any financial instability so if you are ready to buy then I would and just be happy that you have a place to live. 

In reply to The Norris:

For what it's worth, we're in similar shoes and pressing on anyway.  

In reply to girlymonkey:

That's good advice. Having a stable home is much more important than any loss or gain.

Thanks

In reply to The Norris:

For the sake of a couple of months to see what happens we're waiting. 

In reply to The Norris:

If inflation hits then that'd damage your savings/deposit as well.

 

I'd just go for it. I don't think house prices are at an unreasonable level like they were before the last crash. Buying a home is always a good investment in my eyes, especially if you plan on being there a long time.

In reply to The Norris:

Yes if house prices fall and your home is worth less than you paid it would be frustrating, but only really problem if you wanted to sell.

Main concern would be don't over stretch your budget. Interest rates are frighteningly low, but would you be able to afford the mortgage if when you came off the initial deal rate they have increased. (being forced to sell because you can't afford the mortgage when in negative equity is really bad). 

In reply to The Norris:

This would take at least a year, more likely more, to come out and the government would fight it all the way (though they may have no choice, at the moment they seem happy to take out more debt that let interest rates up.) It would mean many people losing tens of thousands in homes, who will probably hold out till the bitter end, the exception being those forced to move from jobs and selling to settle a will.

We're ready to buy when we find a place and will probably go for a fixed rate to start, protecting against the uncertainty.

In reply to The Norris:

Are you selling a house?  If so, is it worth more or less than the one you are selling?

If selling and buying houses of vaguely similar worth, I wouldn’t worry as long as both transactions complete simultaneously.  You’ll loose value from one or the other in a crash.

How much personal cash would you put in to the purchase?  

If just buying, I would wait and see what happens. I very much doubt house prices will generally rise if we leave the EU.  

Really it’s a personal choice - how much are your lives held back by not owning the house you intend to buy?  If it’s holding you back then there’s a lot to be said for pressing on as others have said.  If not, put your cash somewhere safe and giving things a few months might be sensible.

I’m holding one decision back and pressing on with another right now.  My fear is a two year extension to article 50 and endless indecision...

Edit:  Where are you buying?  The same sized house varies more then 10x in price between Oxford and parts of the north.  The more inflated the price...

In reply to girlymonkey:

This times a million. If people thought of houses solely as places to live and not an investment, the world would be a nicer place. Just make sure you could still pay your mortgage if/when interest rates go up.

In reply to wintertree:

We sold our house about 6 months ago, and having been living in rented accommodation while we settle in a new area. So we've got a decent deposit, and have found a couple of nice houses to ponder over.

I think if, as someone else said, it may take a year or so for any housing shock to manifest, I think we should probably just go ahead.

Although it would be annoying if we could potentially get a better deal on a house if we wait, I think it's kind of preventing us from getting on with life a bit... my wife wants a new job, so that might affect her ability to get on a mortgage apparently.

In reply to The Norris:

HTF we’ve got from a house being an essential part of our existence to an “investment” I really don’t know, but I know it’s not a good thing. 

Dont have any practical advice other than as somebody else said don’t stretch yourself to pay the mortgage after factoring-in a few rate rises. 

In reply to The Norris:

Thanks for the extra info.

So - cash in the bank.  If March 29th brings a financial shock it will likely be widespread, not just housing.  So cash in the bank will loose value  through depreciation. That softens the relative risk of putting it in a house.

The priority for my way of thinking would be to find a mortgage that locks in your interest rate for a few years - you could hedge your bets by looking for one locked in for longer at a higher rate.  If things go great you’re paying 2% over the odds, if they go pear shaped you’re going to ride out the first wave of problems and have time to think and reorganise finances.  That’s relatively cheap peace of mind.

In reply to The Norris:

We just bought and I had the same wobble. 

If you think back to 2007 crash, house prices crashed and then recovered in about 3-4 years. We have a 5 year fixed on a cracking interest rate so when we do come to remortgage or sell (probably not this is our long term home) then any crash will have recovered. Doing this we have also locked in the low interest rates which I felt were more vunerable to brexit than anything else. 

Any crash should affect all stock the same way so your house won’t be disadvantaged compared to all the others you would look to buy next. If yours goes down by 10% the house you buy will have as well. 

And finally- renting can suck my balls. 

In reply to The Norris:

I would only be concerned if you intend to move in short order.  If you are going to stay long-term, the value doesn't really matter a jot and interest rates, even standard variable ones, are likely to remain low.

In reply to Neil Williams:

I generally agree, but as someone who bought a house a few years after they doubled in value it was hard to put the annoyance away at burning £40,000 through not buying sooner.  First house so it was real money paying more on the mortgage and paid up the chain when buying the next house.

Likewise with cash in the bank, if prices crash that’s real money burnt buying before the crash not after.  It can be hard to let go emotionally - and the financial consequence are real.  Mine equate to retiring several years later for the otherwise equivalent lifestyle.

This mindset is nothing to do with “investment mentality” as it’s not about making or loosing money on the house, it’s about how ones decisions affect ones real cash levels.

Having such inflationary - and overinflated - house prices is awful as it creates individual loss and gain with no relation to work by the individual, but as a result of geographic (mis) fortune and when you happen to be buying and selling. It also rewards those with more flexibility in both geography and time, who tend to be the better off anyway.  

Not excatly news that house prices are totally broken and that it’s deeply unfair.  The way I see my mindset is in trying not to be an unfair loss that enables the unfair gain of another.

But - we all need somewhere to live!

In reply to The Norris:

Hey Si,

I think me and Tina are still the proud owners of the most expensive two-up-two-down in Easton after buying just before the referendum. We can afford the mortgage, it's cheaper (just) than renting and we know we're not going to get kicked out by a greedy landlord looking for more money. We don't regret it for a second.

Hope you're good.

Ned

In reply to The Norris:

Think about the effect on interest rates as well. 

Assuming you are "young" you may have forgotten interest rates at 17% in 80s/90s. The debt to income ratio in the UK isn't good and there are a lot of people sitting on very high (some may say over inflated) property values which little income fat to cope with something more normal (7%) let alone something high.

The bind is that this causes both a depression in prices and a depression in the market because under  -ve house price inflation puts people in -ve equity and they cannot move.

As many people have said treat buying a house as something more than an investment - it's a home.  Rather than worry about house prices per se consider risk-managed personal finances for 6 years of volatility.  Hopefully you won't need this but if things goes even mildly tits-up (or return to norms) consider if you can handle the financial pain.

All that said - if you bought a house (rather than traded one) in the late end of 2008 you only just about be back to being square in ££ terms (but you'll have saved 10 years of rent).

 

In reply to The Norris:

Unlike others here, I'd wait.

There are lots of houses and, if you miss one, there's always another sooner or later.

It's only 2 months before we know how big a train wreck we're in and the implications will be apparent rapidly even if some of the macro economics take time to crystallise.

In reply to The Norris:

We have just bought a place...in France, which obviously provides a few possible extra complications for me as a Brit.  The politicians will continue to play their games and whatever happens with Brexit there are a whole host of other risks when buying in the UK or elsewhere.  It's a place to live... 

It's probably also worth mentioning that it is fears and wobbles exactly like these that could contribute to a house price slump...The more people see houses as homes and not simply investments, and just get on with it regardless of silly political games, the more likely things will be OK.

In reply to Neil Williams:

Not nessesarliy. My next door neighbours bought the house a few months before the crash and they are still in negative equity 10 years later. Unfortunately their family has grown over that time but they can't afford to move. 

Also another friend of mine bought a house a year before things crashed on a 2 year fixed mortgage with Northern Rock, she only managed to re mortgage when Northern Rock fell over because her parents offered up the equity in their house because hers had lost so much value. 

In reply to The Norris:

If you're planning on living there a long time, then I wouldn't worry about a near term fall in house prices. Just make sure that you take into account how affordable an interest rate rise would make your mortgage. Interest rates have got to rise sooner rather than later.

In reply to The Norris:

Wait. Brexit is just one uncertainty. The economies of China and the US have a big impact on us, too, and things are looking a bit dodgy there. Then there are the banking woes in Euroland. Not to forget a potential Corbyn government. Within a few years I'd say we'll be in a recession, and if you've still got a job then, and Corbyn hasn't nationalised the UK housing stock, you'll get a bargain.

In reply to The Norris:

Is it possible to hold back wodge of cash/savings and borrow a bit more?

My first mortgage rate was 1% more than the interest on savings so keeping a £5000 emergency fund only cot me £50 per year. £50 wasn't much for knowing I could pay for an unexpected repair or pay my bills for a few months if I lost my job.

How stable is your employment?

In reply to The Norris:

You shouldn't be buying a house with an eye just on it's investment growth potential. You should be looking at it as a home first and foremost. You say that you are intending to stay there for a long time, historically property values have always increased over the long term, but over the last half century they have fluctuated wildly, although even then there has over the long term been a steady rise.

More importantly you need to be sure that in the event of big interest rate rises you will be able to weather any short term ( ie months and possibly a few years) storm. EG Are you in a job where there is a reasonable expectation of salary/wages increasing over the years? Do you have capital in savings ready for a rainy day? Could you work overtime or in a second job if things went pear shaped in the short term? Could you pare back on overheads such as car ownership, subscriptions to clubs, climbing wall etc etc if things got tough so as to be able to service a mortgage?

As has been pointed out if the property market crashes in the short term, it's likely that rentals will also be affected, so you might just as well buy as rent. 

Historically recessions have always recovered, it's getting through them that's the problem for most people.

In reply to The Norris:

For someone buying and selling, I think this is a difficult question.  For someone going from renting to owning, though, I would say it's fairly clear that you ought to go ahead straight away.

What's your monthly rent?  Every month you pay that rather than paying a mortgage you're simply losing that cash.  If you're spening £1k/month on rent, and you hold for 18 months waiting to see what happens, you have definitely burned up £18k in wasted money.  Unless you are pretty damn sure that your target house is going to fall by at leat £18sk, this seems a poor gamble to me.

It also seems pretty clear that rates will only go up from here.  If you're planning to hold this house for a long time, I'd be looking for the longest fix you dare.  I doubt we will see five year fixes at just over 2% again for a very long time; there are ten-year fixes at 2.6% which I am seriously considering for my remortgage in a couple of months.  What happens to your house value doesn't really matter if your interest rate is fixed till 2029!

In reply to The Norris:

Does it really matter if you're planning on staying there for a long time? A large drop in value would only be a problem if you were planning on moving or remortgaging and had a high LTV initially.

If you were planning on moving to a larger house at some point, they will also fall by a similar percentage, so although you'll have "lost" money on the first house, overall you'll spend less.

In reply to The Norris:

Based on their reaction to the 2008 crash I would expect the UK government to pull every lever it has to prevent house prices falling in absolute UK £ terms by any significant amount for more than a few months.   If house prices fall by a lot then the banks which lend money to buy houses will start failing or needing bailed out so that depositors don't get wiped out and there isn't a domino effect into other financial institutions.   

MPs and civil servants based in London have most of their own wealth tied up in houses and in UK banks.    Self interest ensures government will f*ck just about any other area of the economy before they let house prices collapse.   They'll print money and let the pound fall to keep interest rates low enough so house buyers can make their payments and the ball can get kicked further down the street like it was last time.   If things get bad enough that doesn't work the only thing that will save you is having your assets outside the UK.

Probably the biggest risk of buying a house in the UK is it ties you down and makes it harder to go somewhere else if things get really bad.

There is probably pent up demand in the system from people putting off a decision due to Brexit uncertainty and when it is resolved there could well be a spike in demand and prices could rise. 

If it was me I would wait, but a smarter less risk averse person might buy.

 

In reply to The Norris:

 

I closed a deal on a house the day after the Brexit vote happened. I was a little concerned... I've since had it revalued for mortgage purposes and it's up by £20k on what I paid for it. I'm not so worried now. 

In reply to tom_in_edinburgh:

I would wait at least until the summer. After 11 years of negative equity (having purchased in 2007) I have finally sold up. 11 years trapped paying a high interest (by comparison) mortgage in a property I grew to hate.

Debt levels are insane (htb, 40 year mortgages, etc) and I think Brexit could bring it all to a head. It's all very well say buy now, but if you time it right it could mean being able to retire 10 years earlier. That said it depends on where you live; if it's an area that hasn't seen crazy gains in the last 5 years (e.g. not London, Edinburgh) then your risk is lower.

I'm waiting until the summer to see what happens. At that point I will have to take the plunge.

In reply to The Norris: I'd have rather thought this is very weighted on where you live, what you do

 

In reply to The Norris:

I guess it partly depends on what time span you're thinking of keeping the house for, and what kind of mortgage deal you get, whether it's a fixed rate one, your job security, and how much you'd mind finding out you could have got a better rate once you're in the fixed rate one (if that's what you go for).

With how we have a housing shortage at the mo, the price of your home will pick up again 'eventually' is my thought, but waiting for a year wouldn't be a bad move I reckon, to wait and see what happens, but the value of doing that probably depends on the other factors I've thought of (there may be other ones too).

If you do find your 'dream home', and can afford it at what rate you get, and are secure in your job, within 20 years your house will likely regain it's value again - so what you have in mind as a plan possibly counts for a lot.

My childhood home was bought in 1983, and the mortgage was paid in full after approx 25 years, during which time there'd been a crash in the early 90's IIRC and some people lost money then (and their homes) because of the recession, and jobs and housing prices being affected, but it didn't affect the long term value of it (my parents kept their incomes thankfully).

 

In reply to wintertree:

We just remortgaged, there was barely two tenths of a point difference between variable rate, 2 year and 5 year fixes iirc. We fixed for 5 to ride out the first bit of the brexit mess cheaper than we did 5 years ago, rates are stupid low at the moment. Who knows what 2024 will bring us!

Jk

In reply to wurzelinzummerset:

This is the best comment on the thread, and definitely correct.

In reply to Timmd:

A common view on this thread.  I am not so sure.  Consider the same basic house that’s at the bottom end of the spectrum for buyers - a three bed mid terrace - can vary between £525 k [1] and  £46 k [2].  One of those is affordable to buy to a person on minimum wage, the other is barely affordable to a couple each earning the median wage.

The housing market in parts of the UK is grossly distorted, and the consequences are grossly distorting the whole of our society.  

Three things keep this from charging.  NIMBY attitudes to house building. Political pressure because some voters have amassed vast unearned fortunes from the crazy inflation of south east house prices over the last few decades.  A London centric economy.  

One day the whole edifice could topple.  Large scale house building is a good way to claw out of a deep recession, and heaven knows there’s the pent up demand down south.

If you buy a house that’s inflated 5x to 10x over the northern equivalent you become beholden to and dependant upon this towering edifice.  You’ve turned hard earned money into an asset whose value is based upon artificial scarcity, central control and marginalisation of the poor. 

For all the comments of “its a home not an investment” I doubt many posters would sleep tonight if their house suddenly dropped 5x in value.  Yet that is what needs to happen to restore an equitable, social balance.

I’m really not a socialist and tend to be appalled by much of Labour Party policy, but both the private rental market and the property market make me think the time for a true socialism is long overdue.  That and the coming job apocolypse from automation over the next few decades.

[1] - Hurst Street, Oxford
http://www.rightmove.co.uk/property-for-sale/property-77012774.html

[2] - Poplar Terrace, West Cornforth
http://www.rightmove.co.uk/property-for-sale/property-67585304.html

In reply to The Norris:

Gearing

Suppose you buy a house, with the expectation that you may need to upsize to a larger house some time in the future. If house prices go up by 10%, your upgrade will require you to stump up 10% more new capital than it would if prices were static. If house prices go down by 10%, your upgrade will require you to stump up 10% less new capital.

Now, suppose instead that you anticipate downsizing to a smaller house some time in the future. If prices go up by 10 %, your downsize will release 10% more capital than it would if prices were static. If house prices go down by 10%, your downsize will release 10% less capital.

Bottom line: if you anticipate upsizing later, your want prices to go down. If you anticipate downsizing later, you want prices to go up.

You could probably construct a similar model for changing location: e.g. moving from Ebbw Vale to Hampstead versus moving from Hampstead to Ebbw Vale, but it gets  complicated because Ebbw Vale and Hampstead have different house-price inflation/deflation rates.

Just remember that all of these rosy scenarios rely on you having a job in order to service the mortgage. If that is in doubt, having a house in negative equity is a very bad idea

 

In reply to The Norris:

The effects of Brexit are already being felt on the housing market. It's only the limited supply that is supporting prices.

Assuming we avoid a no deal Brexit (for which the Bank of England stress tests of bank's mortgage lending assumes a 30%+fall in UK house prices!) it's very likely that Brexit uncertainty will persist throughout any transition period. The question is how much more this will impact the housing market?

My view is it will be negative, maybe 5% reduction over the next 2 to 3 years. But the  fundamenals of the market will mean there won't be a crash, and therefore this isn't anything that should put you off making a long term committment to a house purchase now.

Edit. But absolutely wait to see what kind of Brexit we get, or prevaricate, dally or do whatever you need to delay your exchange date until April.  

 

In reply to The Norris:

if you need a house to live, why not, but take a fixed term mortgage of 5 years at least, plus a hedge on house prices ( you can get futures on the Halifax house price index), in order to insulate you from potentially falling house prices.

 

In reply to The Norris:

Hang fire. You'll be able to pick one up for a fiver shortly.

In reply to The Norris:

If you factor in the cost of rent plus loss of equity you would be putting into the property paying off the mortgage then hanging about waiting is really throwing over £1000 a month away.

In reply to wintertree: Good points, the current housing market isn't 'fair' or sustainable. I can remember I used to look at the housing bit of my local paper, and got to realise that certain areas held their value more than others. I think I agree with Jim Fraser and others now I've thought a bit, Brexit and it's uncertainty is such a big thing, the OP wouldn't be unwise to wait and see what happens. 

 

In reply to The Norris:

my partner and i are in a similar situation. we are a couple of months out from having the money sorted. because we both have stable and relatively cheap places to live at the moment we are going to wait this year out and see what happens. I don't think its implausible for a negative equity situation to happen over the next year or 2 but good investment opportunities could come from bad times. that being said if we didn't have stable places to live currently or were paying extortionate rent rates then we would just take the risk and buy now too

In reply to The Norris:

The main problem is if you need to sell. Worst case scenario is a house you can’t afford, worth less than the money you have borrowed against it. If you can protect against that, which need to consider anyway I wouldn’t worry to much.

In reply to The New NickB:

I gather that's what happened to people during the early 90's recession.

In reply to Max factor:

IMHO 25%+ is credible over the next couple of years.

There is a frightening lack of acknowledgment on this thread of where UK interest rates could be headed following a no deal Brexit. The BoE would need to do what it can to support Sterling – interest rate rises to stabilise the exchange rate could be far more aggressive than have been seen in the past decade.

If you can get a long term fixed rate (and settle in the next few weeks…) then go for it. If not, hold the deposit, ignore the comments about the deposit being eroded by inflation, interest on saving accounts will escalate at the same rate as mortgage rates.

LD

 

In reply to The Norris:

Thanks for all the comments, lots of really useful insights.

For further detail, I'm in a pretty stable job in the NHS (radiotherapy treatment planning - there is scope that my job could become automated in the future, but the technology doesn't exist just yet), and with the recent nhs pay deal, i should be in for a bit of an increase in the next few years hopefully.

A few comments about viewing buying a property as an investment... I can see why you think that, however it's not really how I see it, it's more just having a general anxiety about potentially losing out on tens of thousands of hard earned money, I'm by no means rich, so I just want to make sure I'm making a decent decision to protect myself and my family. 

We live in Somerset, property prices aren't too bad, but not as cheap as up north where we moved from.

We're definitely not over stretching ourselves with the potential mortgage, i could potentially afford the prospective repayments myself, without my wife's input.

I will definitely look into a 5 year fixed deal, I didn't realise you could get a ten year! I may look into that as well!

Again, Thanks for all the really helpful replies.

In reply to The Norris:

10 ish years ago there were loads of mutterings about a recession and house price falls. Northern Rock had happened etc. I asked the same questions and was told "as long as you just want somewhere to live you'll be fine, houses go up in the long term, not an investment etc" so I bought.

I lost about 35% of the value of that place and spent three to four years of my life saving every penny to be able to afford another house. My circumstances changed and I needed to move. 

If I'd waited just 6 months to buy I'd be much better off today.

So if it was me, I'd be waiting to see what happens. Prices almost certainly aren't going to suddenly up a cliff, but there's a real chance they might be about to go off one.

Not a financial adviser etc etc

 

In reply to XXXX:

 If your circumstances hadn't changed too I guess? 

I reckon it's always easier to say 'go ahead' to people when it's their money and not our own.

In reply to XXXX:

Can I ask where the property was as I don't remember any massive price drops on housing in the uk since the 90s.

In reply to The Norris:

Sure. The other thing is these fixed term deals could be rapidly withdrawn if things do go bad, by which time you could have shelled out for surveys ect.

What I would recommend is getting to know the local market as much as possible and getting a short list of properties together you have viewed. If you haven't started viewings yet this can take a few months before you are ready to put any offers in, by which time we might know what is happening.

 

In reply to Glug:

South East UK. But I did just check my maths and it was 23%. I blame a lack of coffee but the point is the same.

I completed on my first flat in feb 2008 which was something of a fail to say the least. I ended up selling it in 2015 for 10 grand less than I paid for it, luckily in the mean time i'd had quite a payrise, but it did mean I lost all of my hard saved for deposit and more besides.

My wife and I are now planning to move again to a more family sized house (and further from the train station that puts quite a premium on our current house). We're not doing anything about it until after brexit, there's not a great deal on the market anyway, so I don't think we're the only ones. Also always wise to wait until the end of the FY in case there are any redundancies coming!

A house may not be an investment, but if you end up in negative equity it is a complete PITA.

 

In reply to Glug:

For me, -40%, still -20% to this day. Central Scotland.

In reply to Glug:

We bought in 2008 in West Cumbria. Prices don't seem to have altered where we are, although there seems to have been a drop in the pricier bits of Cumbria.

In reply to XXXX:

I'm based in the South East too, I'm not disputing what you're saying you lost, I'm just surprised that I don't have any recollection of a housing crash that recently. I bought my first house in the early 90s and it's value dropped by at least 25% the year I purchased it, the same property is now worth 4 x what I paid for it????

In reply to Lurking Dave:

The driving force for base rate changes isn't just to stabilise Sterling. The economy isn't strong enough to sustain a steep rate rise,  it's a balance of many factors but low rates seem likely for the foreseeable future.

If things get really bad the government may have to pay more for its borrowing  and that will play out as a higher base rate, but the perceived wisdom is that we can guard against this risk by choosing to devalue sterling and reduce our debt burden that way.

In reply to The Norris:

We are attempting to buy at the moment. We have decided to just go for it. We are going for a bigger house to fit the four of us plus grandparents as required so will have no intention of moving again for a long time. We can fix for 5 years on a good rate and have a cash pot to cover the mortgage for a year should we fall upon hard times.

Our particular issue is that there is not a lot of housing stock of the type of property we want, where we want to live. One of my post Brexit concerns was that the devalued house prices would stop people selling (generally family houses being sold to release equity once the kids have grown up) so our opportunity to move would disappear. In the end, we want more space, we can afford it so we're going for it.

In reply to Glug:

I'm surprised you don't remember either. 2008.

 

 

In reply to XXXX:

Yep I figured it was 2008, I just didn't realise it was 20% plus drop in the South east, friends who were selling around that time must have been very lucky as they had no problems finding buyers, I suppose their location helped.