Comment: Should first time buyers try their luck?
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Stamp duty and Brexit have stalled house prices, whilst low interest rates means mortgages are cheap. But should first time buyers place a bet?
If I had the money right now, would I buy my first house? It’s a question I found myself pondering harder than usual this week when I heard a friend of a friend had come into some inheritance.
Of course, the good lefty millennial answer is to put your money where your mouth is where it comes to 100 per cent inheritance tax and donate the lot. But that would cause an unconscionable amount of upset to their parents, who expect them to put the money in to property.
This entirely proves the point analysts have been making for months now that without inheritance and/or the Bank of Mum and Dad property is out of reach for most people.
But if you had a shot at putting down a deposit on a house, should you take it?
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Money is incredibly cheap right now and house prices are falling, or at least not rising as fast. There is a legitimate logic to the estate agents and buying experts who are urging people to act now when prices are lowering and sellers’ resolves are crumbling in the traditional summer lull.
Some people may be lucky enough to buy something now that they wouldn’t be able to afford in five years time if house prices recover.
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No investments come without risk. You might just want a place to call your own without having to share a bathroom with six housemates until your mid forties. But buying a house means placing a bet.
House prices are holding steady, but that’s down in part to a shortage of stock. People aren’t moving up and down the ladder as often thanks to tax changes.
The case of the ‘missing movers’ means that the market is acting weirdly, so I wouldn’t trust anyone who claims their entirely confident in their prediction.
Don’t forget that many of these experts have skin in the game. They need faith in property to prevail in the hope they can get people buying again in the numbers they were before stamp duty, and Brexit, and the snap election own goal turned everything into a swampy bog of uncertainty.
A recent ‘ask the experts’ answer to a similar question in the Guardian quoted Russell Quirk from press releases issued by his company, eMoov. Quirk clearly has a valuable opinion, but I wouldn’t ask a CEO of a property company to give a first time buyer unbiased advice.
What if there’s another house price crash? Even if it’s not a redux of the conditions that caused the 1990s crash (a housing boom following interest rate cuts, followed by sharply increased interest rates rendering mortgages unaffordable) or the 2008 recession (job losses making mortgage repayments untenable) I’d be leery of easy mortgages.
The Bank of England is keeping a close eye on proceedings, but if they do raise interest rates then many people will be stuck. These new long-term mortgages are a huge financial commitment.
There’s little to indicate wages are going to rise, especially with Brexit looming. Fixed rate mortgages don’t stay fixed forever, and the interest rate won’t always be 0.5 per cent.
First time buyers are often in the most trouble if the bottom drops out of the market, particularly if they’ve stretched themselves to get on the first rung. As Marcus Dixon pointed out in the LonRes Summer Review, if rates rose just 1 per cent the monthly repayments on a 25-year £250,000 mortgage would go up by 12 per cent.
But, the wait and see approach might not pay off. As Julia Rampen noted in the New Statesman this week, after the last crash mortgages for first time buyers fell off the face of the earth. The spoils of suddenly cheap property went to buy-to-let investors. But then these landlords are the ones starting to struggle now.
There are always winners and losers with the property market, as there is with any market. The great global financial system is little more than a gussied up betting shop.
So, should you throw the dice and buy your first house? Maybe, if you’re definitely not overstretching yourself financially. Maybe, if it’s in a decent location and, if new build property, likely to hold its value (check those ceiling heights). Maybe, if you’re feeling lucky.