Is it a really bad idea to buy a house right now?

[b0rn2sk8]

I’m not sure I agree with all the house price doom and gloom.

For instance, generally speaking, with the exception of aviation, the vast majority of people working in the sectors @Psycho Sonny listed are low paid and are not those dropping £X00,000 on houses.

There is enough spare money sloshing around that will keep house prices as they are or will continue to rise in the long term. The pandemic has disproportionately affected those with less money.

You can’t just look at job loses and project that house prices will fall, you have to look at where those job losses are and where those people are in relation to the housing market. You also need to consider that the economy is bouncing back and early reports are showing that spending is not far off pre lock down levels.

There is also a huge contrast between now and 2008/9 too, the amount of cheap credit available is insane.

Even IF they do drop, it’s likely they will bounce back very quickly, you also have to factor in they are, on average, way above pre-COVID levels at the moment.

 

[Psycho Sonny]

I’m not sure I agree with all the house price doom and gloom.

For instance, generally speaking, with the exception of aviation, the vast majority of people working in the sectors @Psycho Sonny listed are low paid and are not those dropping £X00,000 on houses.

There is enough spare money sloshing around that will keep house prices as they are or will continue to rise in the long term. The pandemic has disproportionately affected those with less money.

You can’t just look at job loses and project that house prices will fall, you have to look at where those job losses are and where those people are in relation to the housing market. You also need to consider that the economy is boycotting back where it matters and early reports are showing that spending is not far off pre lock down levels.

There is also a huge contrast between now and 2008/9 too, the amount of cheap credit available is insane.

Even IF they do drop, it’s likely they will bounce back very quickly, you also have to factor in they are, on average, way above pre-COVID levels at the moment.

Thanks to furlough. Give it another 6 months with no furlough payments then see what happens. Furlough has propped the economy up so far

 

[happy_2008]

I’m not sure I agree with all the house price doom and gloom.

For instance, generally speaking, with the exception of aviation, the vast majority of people working in the sectors @Psycho Sonny listed are low paid and are not those dropping £X00,000 on houses.

There is enough spare money sloshing around that will keep house prices as they are or will continue to rise in the long term. The pandemic has disproportionately affected those with less money.

You can’t just look at job loses and project that house prices will fall, you have to look at where those job losses are and where those people are in relation to the housing market. You also need to consider that the economy is bouncing back and early reports are showing that spending is not far off pre lock down levels.

There is also a huge contrast between now and 2008/9 too, the amount of cheap credit available is insane.

Even IF they do drop, it’s likely they will bounce back very quickly, you also have to factor in they are, on average, way above pre-COVID levels at the moment.

I kinda agree with you here, in our companies 5 year plan there was a lot of recruitment being planned. But no one knows the future, house prices in the SE are still crazy high compared to the north.

 

[413x]

Yeah it's when furlough ends we will start to see the result.

I partially agree with sonny. It may end up being a house of cards. Simply less GDP.
If too many sectors start to fail everything will take a hit.

Hopefully it isn't as bad as that but it could be.

Its not worth buying a house until you can see how reliant the country is on furlough.
The banks wouldn't pull 90+ ltvs if they didn't forsee a decline

 

[b0rn2sk8]

You can’t just say ‘cuz furlough’ and expect that point to hit home. Again you need to look deep at those who are on the scheme still and what impact they actually have on the economy. The scheme has certainly propped up certain parts of the economy that’s for sure but it does not mean it ending will significantly impact the housing market. For example 90% of the people on it may be low paid. In reality, the only people that actually know the detail are in government and can effectively model what could happen are the government.

You also need to take into account that there are huge numbers of people who are not currently spending £6k/year on a season ticket to London and not spending £10k on their annual family holidays. Those people are directing a significant amount of spending at other things like moving house and home improvements.

 

[200sols]

Basically whatever Psycho says.... do the opposite. Not a chance house prices will drop 30%.

 

[Semple]

Basically whatever Psycho says.... do the opposite. Not a chance house prices will drop 30%.

Lol . Standard BS from PS.

 

[mid_gen]

Yeah it's when furlough ends we will start to see the result.

I partially agree with sonny. It may end up being a house of cards. Simply less GDP.
If too many sectors start to fail everything will take a hit.

Hopefully it isn't as bad as that but it could be.

Its not worth buying a house until you can see how reliant the country is on furlough.
The banks wouldn't pull 90+ ltvs if they didn't forsee a decline

Ah the resident house price doom-monger is here, convinced he's made a disastrous financial decision.

Stop obsessing about the value of your house.

A house is a much a financial product as a home. The objective is to turn a massive pile of debt into an asset over 25 or so years. As long as you can meet the repayments, you are doing that and you will come out of the end with the asset.

There will be periods throughout those 25 years when it's price will increase, and periods when it may fall. The periods when it increase massively outnumber those where it falls.

The government will not let prices collapse. Interest rates will be zero for the next 5-10 years, stamp duty will be slashed. The demographics that are in the market for houses are the least affected by covid.

*There may be some regional falls in economically deprived areas that are about to be hit with the removal of EU subsidies, the destruction of certain industries due to Brexit omnishambles, and covid hitting demand. There's also likely to be a continued rise nice suburban and rural areas within occasional commute distance of major urban cenres.

 

[kissenger]

Basically whatever Psycho says.... do the opposite. Not a chance house prices will drop 30%.

This is my thinking too. There are far fewer homeowners on the brink than before the last crash because of stricter mortgage lending rules, and interest rates are low, so mortgage payments are more affordable. But then another part of me thinks, "these experts can't all be wrong!" Or maybe it's just safer for them to predict a crash: fail to predict a crash that does happen and you lose all credibility, predict a crash and it doesn't happen, everyone is pleasantly surprised!

We've wanted to move for a couple of years now, and the house we're looking at is our dream home. My OH wanted to put an offer in before we even viewed it! It's an estate we like, near the school we want. It's big enough, but also has room to extend, so we can add value to it hopefully. Main thing though is moving before baby two comes (next summer). I don't want to miss out and look back in a couple of years after a crash that didn't happen and regret it.

I also wonder whether whatever house price changes there are will affect different types of houses differently. Yeah, a £300k flat in a city centre might lose 30% temporarily, but a lot of people are going to want to move out of cities to places with more room and a garden. The place we're looking at is definitely the former: it's in the suburbs with a big, flat garden. Maybe that counts in our favour?

 

[kissenger]

The banks wouldn't pull 90+ ltvs if they didn't forsee a decline

I agree up to a point, but they are still lending at 90% LTV, which partly contradicts what you're saying (yes, they're harder to get, with higher interest rates, but still).

I think we'll know a lot more after furlough ends (this/next month?). Whatever damage has been done will be evident then, so at least the uncertainty will be mostly over.

 

[chroniclard]

People forgetting what happens December 31st too, compounded by Covid and the socialist government. Its going to be biblically bad.

Be tempted to wait a bit longer if it was me, see how the land lies next year.

 

[Slam62]

As the last financial crisis showed, without loans of sufficient quality the financial system will collapse. Hence I would be very surprised if house prices are allowed to drop much.

 

[413x]

This is my thinking too. There are far fewer homeowners on the brink than before the last crash because of stricter mortgage lending rules, and interest rates are low, so mortgage payments are more affordable. But then another part of me thinks, "these experts can't all be wrong!" Or maybe it's just safer for them to predict a crash: fail to predict a crash that does happen and you lose all credibility, predict a crash and it doesn't happen, everyone is pleasantly surprised!

We've wanted to move for a couple of years now, and the house we're looking at is our dream home. My OH wanted to put an offer in before we even viewed it! It's an estate we like, near the school we want. It's big enough, but also has room to extend, so we can add value to it hopefully. Main thing though is moving before baby two comes (next summer). I don't want to miss out and look back in a couple of years after a crash that didn't happen and regret it.

I also wonder whether whatever house price changes there are will affect different types of houses differently. Yeah, a £300k flat in a city centre might lose 30% temporarily, but a lot of people are going to want to move out of cities to places with more room and a garden. The place we're looking at is definitely the former: it's in the suburbs with a big, flat garden. Maybe that counts in our favour?

In that case it's a bit more complicated.
If it really is your dream house and particularly the baby bit I can understand. No way would I want to move with a new born!

Just weigh up pros and cons.

If this was my dream house I wouldn't be so bothered. I picked one in reasonable commute distance, now working from home makes that moot!

 

[HangTime]

I was faced with a similar situation in 2008. We lived in a bit of a dodgy area and my wife didn't feel safe there, and I wanted to move closer to work. However at the time we were looking (early summer 2008) the writing was on the wall, house prices already falling (we actually lost money on our first house bought in 2006), interest rates on the way down (personally this was good news as I moved us onto a tracker in January as I expected rate falls following the run on Northern Rock etc, but it was an indicator of a downturn). I remember feeling a bit unsure about it and phoning my dad for advice as I didn't want to waste a bunch of cash in a falling market. In the end we went for it because quality of life is important and we were not at risk of negative equity or anything like that due to large deposit, although I was fairly cautious about not pushing the boat out (we bought a 3 bed terrace but technically could've afforded a 4 bed detached).
We still live here 12 years later. House prices fell but as we weren't moving out it didn't really have any impact. Based on the sale of neighbouring properties it's probably worth about 40-45% more than we paid now (pretty poor rise compared to some areas but the point is if you survive a downturn history suggest prices always bounce back - yes it's possible we might have saved money by delaying purchase but with us buying on a new build estate it wasn't that straightforward as there might have been no properties available).

To be honest it sounds like you are fairly sold on the idea of moving already (found a house, mortgage lined up etc) and this is just cold feet a bit like I experienced. I would go for it, I think you could end up regreting it if you stay in a house that's too small for a growing family.

If we buy, and that happens, we're going to be in negative equity in the near term, and judging from the last crash in 2008 it will take the best part of a decade to recover

It actually only took about 7 years for prices to recover to their peak level in nominal terms (which is what matters in relation to negative equity) following the 2008 crash. In some areas like London, Oxford & Cambridge it took less than 4 years to recover.

The other thought I had is, you can potentially 'crash-proof' yourself if you buy a property you can extend and add value to (the one we're looking at has a lot of potential to do that). So if the market drops by, say, 10%, but you've added £100k to a £200k house (after spending around £50k)

Adding £100k to a £200k house in market you describe (16-30% drop) is quite optimistic I feel but obviously possible if you find the right property. Keep in mind if there was a 23% drop (midrange of your estimate) then for that property to be worth £200k after the crash it would effectively need to be worth £260k in 'old money'. So that's a mighty big extension you've built to make the house worth more than 2.5x what it was when you started. You've also got to find the £50k to fund the extension which I assume if you are worried about negative equity isn't that straightforward as you must be mortgaged to the hilt already.
edit: I guess you mean £200k precrash so ends up worth about £154k so you break even.

I think we'll know a lot more after furlough ends (this/next month?). Whatever damage has been done will be evident then, so at least the uncertainty will be mostly over.

I think there will be a lag, furlough will end but people are then getting redundancy payouts, paid holidays etc on top of their savings, so they won't get evicted straight away. You've also got this £1k bonus for retaining furloughed staff so for a few lower paid staff may get retained on low hours until January before being given the boot.

My guess is a fair portion of people who will lose their jobs when furlough ends are not going to competing for the same sort of house as you. I don't have any stats to back this up but you've obviously got a bunch of people in the catering and hospitality sector at risk who will not be earning megabux to begin with and hence not able to afford family houses. A large proportion of those furloughed are young ( https://www.bbc.co.uk/news/business-53416673 ) and again young people are less likely to be buying family homes.

As someone mentioned above, unlike 2008 there is also loads of cheap credit available, really low rates on offer and high LTV. Although low rates do mean there is little left in the monetary policy tank to prop things up.

Unless it really is a dream house. If it's a first house that's just too get on the property ladder you'll likely get something better in 6 months.

Even a 5 percent drop is a lot of money

Sounds like it's not a dream house from your post.

OP has subsequently stated it is a dream house. If you buy in the next six months you save on stamp duty which offsets a bit of a the fall anyway.

If it wasn't for the hassle of doing it I would consider moving to take advantage of stamp duty holiday as would like a bigger house.

 

[happy_2008]

The key thing here i see is:

Buy - If you plan to stay in property for 5 - 10 years or more

Dont buy - If its only a stop gap for 1-5 years

 

[Mercenary Keyboard Warrior]

There is certainly no simple solution, I have posted here before we made a big mistake around the time of the last financial crash by moving into temp housing, even with good jobs and lots of equity it wasn't easy to buy.
The housing market performs badly when there is a recession, just go and look at the number of house sales that happen in these periods.
Builders will often stop, chains struggle to form and often break down, mortgage lenders become more restrictive on their lending, people are unrealistic in price etc.
One group do well though, those with cash (and I mean real cash not cash buyers with mortgages, who are often referred to as cash buyers when they have no property to sell). They can jump in and snap up houses from those that are desperate, looking to sell to avoid repossession, have to sell to move with a job, going into care homes etc, with the non functioning market mentioned above these people do well due to low churn of the market.

You have to remember once your on the market, a fall happens to everyone (although possibly hard to those at the top, less demand for mansions). So if you move from a £200k to a £300k house, your risk of moving is limited to £300-200k x the rate of loss. If the fall is 10% your losing 10% of the £200k today or 10% of the £300k if you move, sure nothing is ideal but the only way to avoid the drop is to not be on the market. As I say above, I really wouldn't recommend it.

Furlough will affect all levels, but people with better houses will tend to have skills that means they will pick up work, it may not pay as well, but most people once they have owned for a number of years will be able to get by on a lower salary.
Inflation does good things for ability to pay mortgages as it reduces the effective value of the debt over time.

I would say right now the most significant risk to any individual is their own ability to see out the turmoil. How secure is your job, what would any payouts be, how employable are you in your area, would you move etc. Be honest with yourself here.
As an individual you cannot get too concerned with the macro environment, just look at how it could affect you, what matters for you, is you, what matters for the country is the country.

 

[The_Arbiter]

I feel OP you need to take a look at your financial situation and if it's stable, buy now,that includes your job security and any paycuts.

I merely say this on the sole basis you've a young child and wanting another a child! So who's gives a monkey's about unrealistic negative equity percentages when so say you've found a house you really like too. Your priorities are jumbled imo, or i've read you wrong. Enjoy your family, worrying about money when you don't need to is insanity imo.

Old proverb. Man who sits on fence too long , gets sore bottom.

Best quote.


Oh, and how many other folk are in your situation OP? Waiting around for a depression with cash in the pocket in secure jobs? If a recession hits people are less likely to move anyway, less chance of finding that perfect house, and competition bidding still active as others like yourself are waiting to pounce.
Do the maths on potential timescales of having actually moved into a new home in the post recession future. Then add that onto your current child's age. I know that isn't an issue for many people however

 

[pinkpound]

We bought just before crash the 2007/2008 crash the prices fell but we only had a mortgage for 65% of the house due to our previous house selling well . It knocked about £15-20k off the price at time but now we are £35k+ above the purchase price

Its all swings and rounabouts if staying for 10 years as other have stated your be fine

 

[MikeTheNative]

As others have said, interest rates are so low at the moment you can get a 5 year fixed for a a decent rate which will lessen the impact of a crash (hoping that prices increase by the end of the term). For me it depends on how affordable it is. If your pushing towards your affordability limit then I would not buy currently if you a lot of leeway then it would be something to consider.

 

[IvanDobskey]

Try not to worry about what ifs. If you have the money and job security, go for it.

We've just bought a house and don't regret it. Prices may come down a bit, but they always go back up again. As long as you intend to stay there fairly long term then no issue.