Jenny asks: “I’m almost 23, and I’m in a position to buy a house next May. My question is, do you think next May will be a good time to buy a house? Or should I wait until later in 2016 or even May 2017 to purchase?”

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Q&A 55 – Buying A House For The First Time Next Year – Shownotes

Today’s question comes from Jenny:

I’m almost 23, and I’m in a position to buy a house next May. I earn 37-44k p.a. and currently have £37500 in savings, which is expected to grow to at least 45k before May next year.

I’ve seen a lot of people say that the mortgage interest rates are going to go up next year, meaning if I do buy, my repayments will be more. I’ve also seen the governments new stamp duty changes for second homes, which starts from April 2016 – the general consensus is that this will drive a rush to buy a load of properties before April, perhaps inflating the cost of properties that I would be interested in.

I currently expect to be able to get a house worth around £200k or less – I’m looking at getting a new build as you can get 20% off the price through the starter homes scheme. My question is, do people think next May will be a good time to buy a house? Or should I wait until later in 2016 or even May 2017 to purchase?

I’m really worried about buying, and then being screwed over by a market correction or a crash (with increased mortgage rates to boot).

 

Most Desperate First Time Buyers Should Slow Down

We’ve answered a few questions in the past from overly eager first time buyers. For example:

Question 8 – Mortgage Affordability Questions
Question 17 – Should I Buy A House If I May Move Soon?
Question 28 – Is £20k Enough To Buy A House?
Question 37 – Buying A House To Rent Out
Question 46 – Should I Buy My Brothers’ Property

In all of these questions, the general answer has been to slow down, continue saving and make sure that you don’t overstretch yourself financially. My response “falling from the top of the housing ladder is much more painful than not getting on the housing ladder at all” has become somewhat of a catchphrase.

 

 

You Might Be Different…

However, for yourself this may not be the case. With £45k in savings, and looking at a 20% BMV new-build on a good income, you are looking to be in a good position to get on the housing ladder with a purchase of under £200k.

Your question therefore isn’t whether you need to delay your house purchase because you aren’t in the right position to buy. Instead, your question about possibly delaying your house purchase is due to the possibility of the market crashing and what is going to happen to interest rates.

 

Don’t Try To Predict The Market

My response would be that everything that we know today is priced into today’s market. Property prices (like stock markets) generally go up from the bottom left to the top right. Yes, they’ll be market corrections along the way, and the Chancellor has been recently putting measures into the budget and Autumn statement to try to curb buy-to-let investments getting the housing market out of control.

But, with demand still outstripping supply, increasing population due to immigration (and the fact we live on a small island), not enough new houses being built to meet that demand, global borrowing still cheap, new help to buy scheme, little to no interest available to cash savers, no blocks being placed on foreign investments, etc, there is plenty to keep the market ticking up.

As far as increasing interest rates go, I can’t see them increasing until later in 2016 and, when they do they will increase very marginally. Also, we may not even see a 0.25% increase filter into lending rates as banks continue to compete on the lowest “initial rates” and these are currently still a good margin above the Bank of England base rate of 0.5%.

Therefore, my advice would be not to try to predict the market. You could wait for the next “crash” or “correction” and buy then. However, that market decline may only be 10-20% and it may not come until the market has increased by another 20-30%, so you will still be losing out in the long-term.

Also, because you’ll be buying a new build at 20% below market value, that helps protect you from a crash soon after you buy, and it will take a significant fall of more than 20% to put you in negative equity. Even if that event does occur (and is usually only does every 15-20 years and did in 2007-8), then you will be in a position where you don’t NEED to sell and can ride it out in the long run.

So, to conclude, I personally wouldn’t put off a purchase until 2016 or 2017 based on what you think the market or interest rates might do, but rather make sure that your financial and social situation is secure enough and, if it is, find a property that suits your needs and enjoy your first home!

 

Ask Your Question

This show runs three times a week and answers all of your personal finance questions. If you have any questions, please don’t be shy to ask. You can ask in three ways:

1. Leave a comment on any of the Q&A podcast shownotes (including this one)
2. Email me at moneystepper@gmail.com
3. Leave a message on the Speakpipe App which you will find below and on our “submit a question” page: