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Is now a good time to buy a property?

Is now a good time to buy a property?

by Michelle McGagh Jun 23, 2017 at 07:23

 

I was asked this week whether the housing market is slowing and whether now is a good time to buy a house.

The straight answer is: I don’t know. And I don’t think anyone else can know either. There are too many factors to consider when looking at the UK property market; interest rates, stagnant income, rental costs, ability to save a deposit, not to mention government-backed initiatives, politics and economics.

If you can make the right guess on all of those factors you’re lucky.

I’m not going to make guesses but the question about whether it’s the right time, or not, to buy somewhere to live did get me thinking about how we view property in this country.

Surely the questions you need to answer are: can you afford to buy somewhere without overstretching yourself or falling into hardship if your circumstances change; and do you want to buy somewhere?

The question the person really wants me to answer is if they buy somewhere will the price keep going up? I don’t know the answer to that either and it’s a gamble you take.

After decades of house price growth, we’ve come to expect property to be a one-way bet, particularly in London. People jumping onto the property ladder now want to know that they’ll be able to make as much money on their home as the generations before them did.

I don’t think that’s a realistic assumption to make anymore. Office of National Statistics figures show the average income to house price ratio in England and Wales is now 7.6, meaning the average house is now 7.6 times the average income. This compares with half that 20 years ago.

When you’re taking out a huge amount of debt to cover an average property, it’s unlikely that the price will rise enough to effectively inflate the debt away (ie, the cost of the property grows so much that the mortgage because relatively insignificant).

Figures from the latest Hometrack UK house price index shows house price inflation in London has slowed to the lowest level for five years, it is now at 3.3% from 14% a year ago. Growth is expected to plateau for the rest of the year.

Of course, figures like this are only a snapshot in time but it shows that you can’t rely on property to just continue climbing at a steady rate.

It’s doubtful that people buying today will be able to sit back and watch their property nearly quadruple in price as those who bought in 1996 have. Nationwide data shows the average property at the end of 1996 was a little bit over £55,000, while at the end of 2006 the average cost was a shade under £206,000.

This doesn’t mean that you shouldn’t buy a home, if you can afford it, because that’s what it should be first and foremost: a home, not an investment.

You need somewhere to live so unless you are forced to sell it doesn’t really matter what it’s worth while you live there. And if you own a house, it’s likely that you’ll have a big mortgage so the bank owns most of it anyway.

The most sensible thing you can is not worry about what it will be worth in the future. Instead think about what you can really afford and whether you are happy to make compromises on where you live and what sort of property you buy in order to reduce the amount you have to borrow.

Once you’ve made the decision to buy then overpay the mortgage as quickly as you can. Just because the term of your mortgage says 25, 30 or even 35 years, you don’t have to take that long to clear it. You can overpay your mortgage - meaning you can make extra payments on top of your standard repayment - with most lenders allowing you to overpay 10% of the balance a year (so if your mortgage is £150,000 you can overpay up to £15,000 a year) or up to a certain amount each month.

It may seem like a stretch in the short term to overpay but you’re doing yourself a favour in the long term as you’ll reduce the number of years you will pay your mortgage for and you will pay less interest on the mortgage.

No one knows whether house prices will go up or down or whether you will become a property winner in the future. All you can do is buy somewhere you want to live, rather than trying to buy an investment, and make sure you take steps to own as much of it as quickly as possible.

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Comments  (9)

  • Stephen Hibbin: 

    Excellent analysis. Fully agree with the comments made especially the point of overpaying the mortgage when possible.

    08:07 on 23 June 2017

  • Codger: 

    What a sad article! It's all about buying a property to make a profit, all about greed. People should buy a property so that they have a home to live in, not because it might be a good investment.

    I am not against renting but tenants have no security. Hopefully, the government will introduce measures to give tenants the right to live in a property as long as they wish.

    The tax treatment for buy-to-let investors has improved recently and so I hope this will gradually release properties for younger people to buy.

    09:10 on 23 June 2017

  • Stephen Hibbin: 

    Sorry Codger - but surely the article made the point that the purchase of a property was that it was for a home and not an investment!

    09:20 on 23 June 2017

  • Ermintrade: 

    Stephen's right, Codger. Try reading the article properly before jumping into print.

    09:56 on 23 June 2017

  • anne greenhalgh: 

    The article is well balanced and looking at buying a home not an investment, but being practical about how to own the home more quickly.

    11:32 on 23 June 2017

  • J Thomas: 

    The point to remember is that it is the taxation element of property which is the biggest factor now.

    With the new draconian stamp duty rates the government have seized between in the order of 5% to 12% of the value of a house. For a buy to let buyer its between 8% to 15% with the new 3% surcharge. Although I do welcome the landlords surcharge, and believe the stamp duty for principal residencies should be cut to a maximum of 3%, with the landlords surcharge increased to 25% to compensate. We also need to charge landlords a 1% annual land value tax.

    While I have been very fortunate in that the value of my home has increased by 14 times the original purchase price, I despair that my children will ever be able to afford to buy a similar property even with parental help without an end to buy to let.

    22:09 on 25 June 2017

  • Brad: 

    As MM says, no one truly knows what is going to happen, I have been reading on CW for a number of years including 7-8 years ago as I myself was looking to re-enter the housing market. Back then there were a number of commenters who were utterly convinced that the bubble bursting had only been postponed after 2008 and that anyone buying was a lunatic and was going to get burned.

    It's now 7 years on since I bought, I was buying primarily as a home, but also cautiously taking the chance to move to a slightly less desirable area (It's no war zone, we had just been renting in one of the two best postcodes in Nottingham before that) to take on a 20 year mortgage not 25 or 30 in the better areas. With rates so low it has also allowed me to nudge under 10 years remaining. Add to that that prices in my area have risen by ~30% and I think buying is the way forward. If I had bought at the lending limit at the time in the nicest area, maybe that 30% could have been 40+% of a bigger number, but moving down from 30 to 23 years with higher payments would have paid off less capital and pinned us down socially. As well as exposed us to any rates rises or market crashes.

    My advice is always, get on the ladder when you can, but make sure you can truly afford the place you live in, get the best deals when you can, but look at the consequence of a 3% rates rise (Highly unlikely to happen quickly as the BOE knows it would ruin too many homeowners who have over extended) or even 5% if you can't then maybe you are taking too bigger risk?

    Renting is dead money and the only advantage to it is the flexibility to move quickly and easily. Most people I know who are renting are paying more for that privelege than those of us on a mortgage. That said, they won't have to stump up for the new carpet in the hall way!

    08:16 on 26 June 2017

  • normski 2nd: 

    Afternoon folks,

    Where I live house have not increased in price for about 10 years but that is not the point. Houses are meant for living in and bringing up families and creating memories. Property has become too much of an investment issue over the years. Ok I know this is a.financial website but lets not get away from the reality of housing.

    norm

    16:14 on 28 June 2017

  • LANDLORD X: 

    No mention of the highest immigration in British history or lowest interest rates in 5000 years or complete inability of govt to plan for social housing

    But hey, let's blame private landlords...

    15:04 on 11 October 2017

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