With concerns over falling house prices and a potential imminent collapse in property prices, many people are worried about whether they should delay buying a house.
The IMF recently suggested UK house prices are overvalued by 50%. For example, they point to the fact house prices have risen faster than incomes and rent. However, this doesn’t mean house prices will collapse by 50%. Part of the reason for the rise in house prices is the fundamental shortage in supply compared to demand.
However, it is worth bearing in mind these factors:
- People have been predicting house price falls for the past 5 years. Since that time house prices have risen nearly 100%
- If house prices do fall, it is not the end of the world. (Whatever headlines in the Daily Mail may say)
- A fall in house prices are not necessarily a problem for homeowners. If you buy a house to live in, a fall in house prices doesn’t effect the cost of mortgage repayments. In fact a fall in house prices will probably enable interest rates to fall and make mortgage payments cheaper.
- If house prices fall and you need to move, don’t forget over house prices will be cheaper to buy.
If you are buying a house as a property investment, it is of course a different matter. A stagnating or falling housing market is not a good time to buy a second house.It would be better to wait until the market has changed direction. At the moment it is difficult to get sufficient rentable income to pay 130% of the mortgage repayments.
My advice is if you want to buy a house rather than renting, don’t let a potential fall in house prices put you off. As long as you can afford a mortgage and you are not over-stretching yourself it makes sense to buy a house rather than renting.
However, if you are planning to get a 100% mortgage in the hope house prices will rise, enabling you to remortgage I would be very cautious, try waiting and saving a deposit instead.
If you are buying a house as an investment, I feel the best buying opportunities have passed. Nevertheless in the long term, it is possible the housing market will continue to be a good investment. I don’t see the government addressing the fundamental shortage in supply in the near future. This is the main reason why house prices are so expensive
3 comments ↓
Prices will not drop significantly until employment starts to fall like it did in Japan and the UK in around 1990. Or, if lenders stop lending in the long term. In a normal world, as it becomes more and more difficult to buy, lenders will come up with more and more products to offset the difficulty of affording property. As that happens, prices will continue to climb. Making a mortgage term longer is a good example of a new product that can be extended to accommodate for the needs of an inflating property market.
Additionally, there is also the average household income to mortgage cost ratio rather than against house price to consider. This is not nearly as dramatic as the ration of income vs prices because mortgage costs are so much more affordable these days as interest rates are lower and the available mortgage terms are longer.
Discuss…
as a first time buyer, is it worth to have a mortgage this time with a 6.67% interest rate for five years (ending 2013) from abbey, some are saying that houses are falling down but we don’t see the effect of that in having a mortgage this time and what if this economy crisis will be resolve within 3 years does it mean that interest rate will come down?, thanks
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