Buy A Home Or Rent? The Eternal Question For Potential Home Owners…
House prices are up, house prices are down! Should I buy a home now or rent? When will the prices drop? Will the mortgage lenders ever give me more than a 95% loan? There are probably 100’s more question that first time buyers are asking themselves right now but is there a right answer?
Prior to 2006, everything was easy. You went to your bank/building society, applied for a mortgage then ‘self certified’. The rose-tinted glasses were firmly in place and nothing could go wrong… except for that little global credit crunch (caused, in part, by the housing market itself). Fortunately, we haven’t witnessed a return to the massive devaluation of homes seen in the 1980’s but there have been repossessions; lots of them.
There’s plenty of market analysis out there but for most of us, a condensed view of the mortgage market will do just fine. Here’s the Code Ferret view.
The Current Housing Situation
Savvy buyers have been watching price fluctuations trying to gauge the best time to hop onto the housing ladder. Doomsayers predict a massive slump in house prices, buyers rub their hands in glee, home owners weep blood! There’s good news (and bad news) depending on your position.
The government has publicly stated that they have no intention of depressing house prices (bad news for buyers, good for owners). Given the current demand for houses, the government has committed to building more homes. Not surprisingly, the home builders have been pushing hard for this announcement (they have to keep the investors happy).
There are a few issues we can see:
Land. We live on a relatively small island and land is at a premium. At some point, parts of the green belt will have to be torn up. Also, eating up the green belt means less land for agriculture and rearing of livestock – where’s the food going to come from?
Prices. The government won’t intervene to control house prices which, in our eyes, means any new built home will be as expensive as buying from the existing market. House prices are already too high so how are first time buyers supposed to get onto the market?
Mortgages. We can understand why the banks moved away from 100% mortgages but now it’s time for a rethink. Most renters can’t afford to save towards a mortgage because their money is being eaten up by constantly rising rental prices – Catch 22!
Can Future House Prices Be Predicted?
That all depends on your viewpoint. Just about every estate agent I’ve spoken to has said that house prices will drop. Then again, just about every estate agent I’ve spoken to has said that house prices will remain static or rise!! To me, the answer you get depends on the situation – if you’re selling, the estate agent wants a sale fast and will recommend you flog your home before the price crash comes.
If you’re buying, the estate agent will tell you that you need to buy now before the prices rise (as he wants his commission).
OK, I’ve tarred all estate agents with the same brush and I know there a large number of them that have, and will continue to, give honest answers…
Can You Afford A Mortgage?
OK, so you’re looking to bail out of the rental market and head into the territory of the home owner. First things first; can you afford it? Renting a property might not be your cup of tea but is does have a number of benefits:
- Repairs. You’re not responsible for the cost of repairing faults.
- Easy exit. Unless you’re tied in to a long rental contract, you can move fairly quickly should money get a little tight.
- Although you’re rent will vary according on house size, area, etc you’re largely insulated from the unpredictable markets and sharp price drops won’t affect you (beyond putting you in a better position to buy)
- Moving is easy. Find a new place, hand in your notice and hit the highway. If you want to sell your house you could be waiting for months before you complete.
Time to get a little critical and ask yourself a few simple questions about your potential life on the housing ladder:
How much do you need to borrow?
Currently, (late 2011) the banks are still a little twitchy about lending too much money to you and I. The lower your loan requirements are the better your chance of getting the big green tick in the box.
How much other debt do you have?
It’s fair to say that most of us carry a certain amount of debt with us but is it too much? Before you head off to see the bank manager do a quick calculation of your outgoings once mortgage payments have been added to the equation.
Dream home or enough for now?
What do you want? A home that’s ready to move into or one that needs a little work? If you’re looking for a property that can be developed make sure you have enough cash in the kitty to cover all eventualities (then add 10% to the figure).
Rent To Buy
Although this method of buying homes has been going strong in the USA for some time, rent to buy is a relatively new idea for the UK. Aimed at first time buyers, this property purchase has been a godsend for people with damaged credit, lack of credit history or deposit.
The purchase method is known as Lease Options and is 100% legal. Solicitors are still used, just like you would in a traditional house purchase.
The beauty of this method is that it lets you move into your new home, now and with no mortgage!