Is it a good time to Buy a House?

Many in the housing and mortgage industry are predicting house price falls for 2008. Therefore, many prospective house buyers may be worrying whether it is best to wait before buying. These are some of my thoughts about whether now is a good time to buy a house.

• Are you buying as an investment or are you buying to live in the House?

If you are buying as an investment then now is not a good time. It may take several years to see significant capital gains. However, ff you are buying to live in the house does it matter if house prices do fall? Suppose you have to move in 5 years. If your house has fallen in value, so will all the other houses. It is the same with rising house prices. People notice that house prices have increased in value, but, that doesn’t necessarily make them better off because it is more expensive to buy another house. Therefore, a potential fall in house prices shouldn’t preclude buying a house.

The main problem of falling house prices occurs if you get a 100% mortgage and hope that rising house prices will give you an effective deposit.

• Falling House prices could make mortgage payments cheaper.

If house prices do fall in 2008, I would predict that interest rates will be able to fall by upto 1%. This is because a fall in house prices will reduce consumer spending. In turn, this will reduce inflationary pressures, therefore, the MPC is able to cut interest rates without stoking up inflationary pressures. Therefore, if house prices do fall it is likely that monthly mortgage payments will become cheaper. To most homeowners the monthly repayments have more immediate impact than the value of the house.

• Buying a House is Better than Renting.

A mortgage payment is fixed for 30 years (apart from fluctuations in interest rates). Therefore, if you pay £700 now, 30 years from now, the mortgage will also be £700 (assuming long term interest rates stay the same – It could be more or less). However, if you rent for £700, the cost of renting is likely to go up by at least the rate of inflation. Therefore, if renting costs £700 now, 30 years from now you could be paying double that. Furthermore, after 30 years or whatever your mortgage term is, you will not have to pay anything. This is a big investment for the future. The sooner you buy a house, the sooner you will be able to live rent free in the future. See buying a house as a similar investment to getting a pension.

• House Prices were predicted to fall in 2002

Many people have been predicting the imminent collapse of house prices since at least 2003. Since then house price have doubled. Don’t forget the main reason for house prices rising in the UK is a shortage of supply and rising demand. This economic fundamental is unlikely to change in the near future.

Are you a first time buyer, wondering whether to buy? We would be interested in your views about whether now is a good time to buy.

Related

• Are UK House prices set to drop?