That was my point - focus on value as a measure for giving credit lead to vast over lending, which meant we had lots of cash to splosh around (and because we also went on value we thought we were better off and did splosh it around).Originally Posted by TheAnimus
Actually, everyone did think about cost first in the dark ages. the modern age is all about value (more specifically fair value).
It was moved from cost to fair value so that it gave a better picture on things but unfortunately it is more volatile.
Well absolutely - in an open market everything is rightly about value. But that doesn't mean the credit crunch wouldn't have been prevented if people cared about cost instead
Is your home for investment, or living in.
if you want to live in it, you need to worry about COST.
if you want to make money from it, worry about VALUE (and therefore volatility of value).
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menthel (20-06-2008)
True true that is a good thing to remember. But i guess like all things in life, people want to buy things when there is a sale rather than during normal times
Yes, but if you're buying a home, as opposed to a house or flat, you ought to consider cost and value.
On the cost front, a buyer needs to know what he can afford. And, if he's got any sense, he'll budget on costs (like mortgage rates) going up. There's no point being just able to afford it now, because if rates go up (as is quite possible), you may then find you can't afford it. And that gives you a serious, and potentially very expensive problem.
But it's also about value, or rather, getting value for money, because you have to be happy to live in whatever you buy. Buying just to get on the ladder has been a prime motivator, simply because delaying either meant you get less for your money, so would have live in something less than you might have been able to, or because delaying might mean you couldn't afford to do it at all.
But today, the dynamic is different. With prices falling, delaying implies either reducing your cost, or getting more (hence better value) for your money.
If someone has a realistic budget of £x,000 now, then delaying a year may well mean that same type of home (or even the same home) is available for £x,000 - 10%. So you need a much smaller mortgage, and therefore have lower monthly costs for the next 25 years (or whatever). Or it means that for the same budget, a 3-bed semi becomes an option whereas it isn't an option right now. If what someone wants is a 3-bed semi and they can't afford it right now, but could by waiting, then they end up with better value because it's what they really want not just what they can afford.
So, in relation to value, the market value of your home may be rather irrelevant, but that doesn't mean that, as a buyer, you shouldn't be careful about getting value for money, because you have to live in whatever you buy and the better the value for money, the better that experience will be.
I also totally disagree that buying for investment is just about value. It's absolutely about cost. If you get the cost wrong, it's going to be hard to make money from it. The primary rule of developing is to buy at the right price, because that price, in relation to current market value, determines the ability to extract a profit. Similarly, buying to rent involves making sure that the rents you can extract justify the cost of financing the purchase, and the maintenance and admin costs. And that's far more true now than it used to be, when people bought for the capital growth and were more content to let income cover costs.
The other mans grass is always greener, and people like Rave aren't going to jump on the property ladder at the perfect moment and get the property of their dreams because their pre-occupied with value, ignoring cost.
If you live in a house, and can afford the re-payment the bank won't mind you been in -ve equity, they're not going to add an extra 5% to your APR, they might evict you at the first payment miss, but their not stupid, they'd rather let you pay it off (pay them profit) then evict, sell at firesale price, and loose out. The fact is that wiaitng 3 years might of helped you out as you'd of had more house for your money, but thats crossing over into prospecting rather than buying a house!
If your there to live its cost, not value you have to watch. That said in watching the Cost you have to think about bumps either way (caused by change in value). So there is an implicit relationship. But you shouldn't take your eye of the primary concern.
As such if your looking to invest its VALUE not cost you care about. You don't need to be able to afford the cost if the value is high enough to sustain your plans, and your banking on it remaining so.
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At the end of the day you should pick somewhere you feel comfortable. As far as I can tell, the main difference between an appartment and the flat is the price tag & how much the Residents Commette interfere.
In a flat, they'll be a management company who might, if you're lucky, cut the grass and wash the windows. The Residents commette will do sod all.
In an appartment, the management company will do a lot more, charge a HELL of a lot more, and the residents commettee will hold the power of life and death of you.
As for all the worry about a housing crash, I think that's only a big issue if you plan on moving in the next few years. Mrs Lucio and I have space here to raise 1 and maybe 2 children comfortably, with nearby Primary schools and plenty of space for them to play outside safely as it's ground floor. Try and plan for about the next 5-8 years, whatever you buy should have enough space for the future so you're not forced to try and move under the shadow of negative equitiy.
Final piece of advice, is echoed plenty of times above, make sure you can easily afford the costs, including any extras like commutiing.
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This is bunny and friends. He is fed up waiting for everyone to help him out, and decided to help himself instead!
I'm with Rave on the drop of 50% (based on nationwide average house price index).
I predict it will go something like this,
start of the crash (march/april 2008)
first year 20%
Second year 15%
Third 10%
Fourth,Fifth, Sixth 5%
starting to recover on the seventh/eighth.
I reckon if you have the savings to, it will be worth buying in 3 years time.
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Flat wise get a top floor corner place (nicer views, quieter and more privacy normally) Also I wouldn't go higher than a four story building.
Depends what you mean by "crash".
If you already have the house, then you certainly have the option to ride it out, and providing you can continue to meet costs, then it's not much of an issue. Even when you come to move, if your house has crashed, so will whatever you're looking to move to.
But if you're buying, it's a rather different calculation. Then, if you do believe there's going to be a crash (by which I mean a serious downward shift), and you're right, it'd be financial madness to buy in advance of that. Why borrow £150,000 to buy something if you expect you could buy it for £75,000 in a year or two's time?
If you're looking to invest, it's return on investment you care about. And to achieve that, you have to buy at the right cost. The right cost is the one that, when adding the cost of the property, the cost of fees, etc., and the cost of any work that needs doing leaves a sufficient gap between that and value that you can achieve the return.
The overall value of the property is largely outside your control. You can, of course, add value if you do the right things to a property. That might be little more than a lick of paint, or it might be an extensive redevelopment, but either way, the cost of acquiring the property has to be right, and you have to be able to do the right work and to do it at the right cost, in order to achieve a return that makes the effort, and the risk, worth doing.
The market will then determine the value.
If you get the costs (both purchase and work) right, you will make money. If you get the costs wrong, you won't, and could lose a lot.
The biggest single decision any developer faces is to get those costs, and especially the purchase cost, right.
But Parm is talking about buying a home, not an investment.
It's a bit harsh to refer to me in the third person old bean, when we've had a drink together?In any case you're wrong, I totally understand costs vs. value, which is why I'll happily buy at what I consider to be the bottom of the market even if interest rates are 15% at that point and my mortgage for the first couple of years is extortionate.
They're not going to do it off their own back, but who knows what the BOE will do? CPI was at 3.4% this month in case you didn't notice; the BOE can claim that it'll all blow over in a year or two but if the pound comes under attack and inflation really takes off- we are after all pretty dependent on imprted goods- they may well have to raise rates, and hard.If you live in a house, and can afford the re-payment the bank won't mind you been in -ve equity, they're not going to add an extra 5% to your APR,
If you rent, all you have to lose is the difference between the cost of your rent and the cost of the interest on the mortgage for the place you want to buy. Since renting is currently cheaper than an I/O mortage on pretty much any property, right now you cannot lose, since property prices are coming down, and will do for some time (at least for as long as the term of an Assured Shorthold Tenancy).they might evict you at the first payment miss, but their not stupid, they'd rather let you pay it off (pay them profit) then evict, sell at firesale price, and loose out. The fact is that wiaitng 3 years might of helped you out as you'd of had more house for your money, but thats crossing over into prospecting rather than buying a house!
Not all of us live in the here and now. I would be happy to absorb a small short term extra cost- if renting were more expensive than buying- if I knew that I could pay off my mortgage 5-10 years early by delaying my first house purchase. As it happens, renting is not more expensive than buying right now, so I'm better off renting right now, let alone in the future.If your there to live its cost, not value you have to watch. That said in watching the Cost you have to think about bumps either way (caused by change in value). So there is an implicit relationship. But you shouldn't take your eye of the primary concern.
In this market- you what?!As such if your looking to invest its VALUE not cost you care about. You don't need to be able to afford the cost if the value is high enough to sustain your plans, and your banking on it remaining so.
Rave, i don't see where you get these statistics about renting from.
Identical flat in block of 7, to mine has just been re-rented, on a 1 year. £300pw.
The intrest on my mortgage is less than £1,300, by a long way. And we didn't get a particually good price with the final offer actually been £250 above asking price (got into a small bidding war).
Plus their flat isn't as nice as ours, i know that sounds like i'm been all house proud, but ours is the better one of the mirror image as far as sun, noise and smells go (theirs overlooks the bins).
Now given that rents are generally clyclic with house prices, you could argue that this is a simptom of hte high house prices, rather than high rents.
Now i'm not saying i'd buy as an investment, just trying to prove the point that if its an investment, your gambling on going up, you can buy something you can't afford and make a small fortune if your gamble pays off (or be left with the shirt on your back if your too leveraged). Just another illustration of cost vrs value.
Now before i pass out from too much drum n bass, i'll put forward one other thing, once you've got your own place you can invest your time in making it perfect. This is where my biggest cost is (currently more than my mortgage), this is something that you can't really do in rented accomidiation.
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CRIKEY! This thread got a whole lot more meaningful in a whole lot less time than I expected!
Thank you for all the warnings against buying, I'm now petrified and ready to make whatever cash I have to the deathbed. Hehehe, warning has been heard, though.
So, let me clarify my situation a little bit:
The missus and I don't want to get a place, we need to get one. Personal reasons more than anything, but I essentially need out, and the missus wants to go where I go. With that in mind, however, we don't necessarily need to buy - we could rent?
So, with that out the way, we've been house-hunting for the past six months or so. The first "house" we really liked, was a detached former show home going for approx 250k. The place was really nice, not too big, not too small...cosy. But, I eventually deemed it too expensive with the way the market is, and too risky - as you've all pointed out! The other half agreed so her and I continued looking for something cheaper.
After some more hunting, we decided on an apartment. The idea is to buy it, live in it for a year or so, see how the market progresses - then, buy a house and put the apartment up for rent. That's the theory, anyhow.
Fast forward a little bit, and we've now found a duplex apartment that we REALLY like. It's priced at just over 150k and is a top-floor place in a newly built block of 15. It'll be complete in September, and it seems perfect.
In regards to finance, we'd be able to put a decent amount down upfront, so on this kinda apartment we'd have about 80% of it paid off immediately.
Problem! The apartment we really like is leasehold. The property developer tells us that all apartment blocks like this are leasehold, and they don't come as freehold. Other developers at other sites have told us the exact same - is this true? I don't know the exact ins and outs of freehold vs leasehold, I've just always been told to avoid leasehold like the plague. That same message has been echoed throughout the thread.
That brings up a few early questions:
Is leasehold really that bad? The lease in question is for 155 years.
If we bought a leasehold apartment, could we rent it out when we move to a house?
What else do we need to know about leasehold before buying?
Second problem! The apartment only comes with one allocated parking space, and my partner and I have a car each. I'm going to talk to the builders about the possibility of a second reserved space - but what are the chances of that? Slim, I reckon.
...or, should we just rent for 6-12 months and then think about buying? I'd much rather my own place, though.
if your wanting escape, in 1 year, that will require a mortgage that could be intrepreted as buy to let.... you're costs WILL be high in 12 months for any such products.
As such i'd consider renting, but renting something that you accept is a short term messure helps with the savings espesually if you rent a small place.
Myself i'd be wary of two major factors, one its off plan.
Buying off plan is hard, espesually as it sounds like a large developement, generally speaking the larger the block of flats in a purpose built developement the more of them there are, and the supply dosen't jump up. (obviously if its a real flagship building which will outstrip supply, this is a different matter). Myself i wouldn't take the risk as i've only ever bought one flat in my life, even if i'd bought 5 i still wouldn't know which where going to be builds that went ok!
Look at the *shudder* types i can't remeber exactly the whole facts but carrot homes have stopped new builds because they simply can't sell their god awful developements, not even the ones they've been doing in east london (and people who buy in east london never cease to amaze me with how much they pay for lemon).
Now the main reason people retain freehold ownership is like most things in life money, they get to set the ground rent fee, and the mangement fee. I wouldn't put it past someone to figure out a way of making money from it. As it stood if i wanted to put up a new fence, i can pretty much get it done if i just perswade one of my neighbours its a good idea (and one of them is very safe).
Big off-plan developement, leasehold only, you want to live there only a year.
I'd woose out myself.
As for price drops, if your intending to be 80% owned, then your pretty much ok, say the doomsayers are right, and property prices fall by 50%. Who cares the delta between your house you want is actually lower and makes up for the fall for the flat, more so if the price difference was more than 50% to start with. The question is would the flat be worse hit. Large building, with only lease hold thats quite new (remeber buildings 'drift' when new, cracks and lines will appear that need polyfilling+painting for the first 3+ years).
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If the doomsayers are right and prices fall by 50%, then having bought would be a huge financial mistake.
Yes, the delta between the flat and house are likely to be broadly the same, but you've either taken on a huge mortgage or spent a lot of money on the flat.
Suppose the flat in question is £150,000. If 80% is bought outright, that means £120,000 is laid out in cash, and a £30,000 mortgage taken on. Then prices fall by 50%. That means you now have a £75,000 flat and a £30,000 mortgage on it. Tha bank are going to want their £30,000, sooner or later, one way or another. So you have succeeded in spending £120,000 in order to buy £45,000 of equity in the flat.
Oh, and on top of that, it's very likely that you've paid stamp duty (£1500), and you will have paid legal fees on the purchase. So there'll be £2000 - £2500 in costs to buy. And, of course, you forego the interest on the £120,000, which could have been in a bank earning, say, 6%, meaning £7200 in lost interest.
On the other hand, if you wait 12 months and rent, then it'll cost you 12 months rent, but you can offset that stamp duty and legal fees against that, and pay the balance (or most of it) from that interest. Then, in 12 months, you buy that flat for £75,000. The difference is that this time, from that £120,000, you spend £75k on the flat, keep £45,000 in the bank and don't have a mortgage to pay off.
So, if (and it's a big if) the doomsayers are right and prices fall by 50%, buying now costs £45,000 in cash, and lands you with a mortgage for £30,000, compared to waiting.
None of us have a crystal ball, Parm, so none of us can be sure what will happen. Prices might fall by 10% not 50%. And there'll no doubt be significant regional variations. Some areas will fall much more than others, and who knows, maybe some areas will maintain prices or even still go up a bit.
All I would advise is to think carefully about it, and to remember that, unlike recent years, there's no market imperative to buy ASAP. If you have personal reasons for getting out, then it might still be the best move to buy. But bear in mind, if prices drop a lot, it could coat you a LOT of money compared to waiting. Or it might not.
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