Is It A Good Time To Buy A Home?Thursday, July 04, 2013 Mary Anne Velasco
Up until the housing crash almost everyone would have told you to get your foot on the property ladder as quickly as possible. Banks were advising their customers to take out 100% mortgages and people were using credit card debt to pay the deposit. Everyone thought their homes were investments that would keep rising, and if they didn't get onto the housing ladder quickly they might be left behind unable to afford to do so in future. With the house price crash those illusions melted away faster than ice on a sunny day.
It's now been a few years since the crash an in some parts of the country, especially London, prices have consistently grown and are now far in excess of even the heights of the pre-crash era. Are we about to see another crash, or is it once again time to jump onto the housing ladder and stop wasting money on rent?
Sadly the answer isn't straight forward and experts have contrasting and conflicting views. The decision is one that you'll have to consider at length and decide if the problems of going into negative equity will adversely affect you. Typically the worst thing that would happen if house prices go down is that you own more money on your mortgage than your house is worth. That will often prevent you from being able to sell your house unless you can pay the difference. Negative equity isn't a problem if you plan to stay in your home for the long term, but if you might need to move it can cause real problems.
In the short term it looks like housing prices will only go up. With the government's new scheme to help first time buyers get mortgages there will be more demand for the same level of housing stock. The current scheme for new builds is already in play, but from next year a slightly different scheme will apply to the entire market. This will almost certainly lead to an instant price hike as people who couldn't afford the deposit now only need 5%.
It's important to consider how prices are formed. Economists will rightly tell you that supply and demand are key factors. If you live in an area that is losing population then it's likely that prices of homes will decrease, or at least flatline. However if you live in any area that already lacks enough homes and has a growing population and good employment prospects, you can expect housing prices to keep rising. At the moment it looks like London prices, despite being around double the rest of the country, will keep growing because of these factors.
Remember though that mortgages typically last of 25 years. If you had just finished paying off a 25 year mortgage you would have taken it out in 1988, at a time when the country was very different. It's likely than in another 25 years the factors influencing your house price now will be very different than today. A government could have come in promising and delivering millions of new homes, something that would drive prices down. The main industry in your region could have moved elsewhere or just died out, leading to depopulation and unemployment - which also drive down prices. While it's possible to have some idea of what might happen in five years time, predicting for the full length of a mortgage is a futile endeavour.
Instead think of the medium term. If it looks like prices will keep growing then taking out a mortgage now can be a good way of saving for your retirement, and potentially a better plan than getting a pension. If you think prices might fall however then continuing to rent until you're more certain could be a more prudent plan.