Dream home or financial nightmare?

An old friend rang me on my mobile this morning to chat, but I was immediately suspicious. She is lovely and has always been a great mate but, like me, is busy and rarely rings during the week without there being something on her mind. So I waited patiently for her to get around to telling me all about it.

It transpires that she and her partner have become smitten with a fairytale house that sounds like a once in a lifetime opportunity. It’s a gorgeous place that’s bordering on being a mansion, built a few hundred years ago. They weren’t really seriously looking to buy as they already have a nice home which – typically – they’ve just finished getting right. But one weekend they got bored and did a bit of idle internet trawling on Rightmove. Then they stumbled across this amazing house and just had to see it. And now that idle trawling – if the sale goes ahead – will cost them a small fortune.

So what’s the problem, apart from the price, I wondered? She and her partner both have good jobs. Of course it’s the usual thing – location, location, location! It’s in a very, very deprived area, with a crime rate which makes Midsomer look like a retirement village. And with a lack of investment into the area, it’s unlikely to improve any time soon. To cap it all, my friend will have a small child by the time the sale goes through. So I’m wondering if this dream house is worth it, when she might not feel safe in it alone with a young baby when her partner is at work. And will it be a good investment when an economic slowdown is on the cards and house prices in some areas are already slowing? Not to mention the fact that they will probably be relying on one income for a while. The timing, on many fronts, is not ideal. But then again, it is a gorgeous house and they plan to live in it for at least 15 years, so in investment terms it’s likely they’ll ride out any economic storm in. And perhaps it’ll turn out to be a great investment. Who knows?

But with my frugal cap on, I can’t help thinking that now is the time to be battening down the hatches and reducing your financial burden, not adding to it. And I’m just relieved that it’s not my dilemma! I know what it’s like. A few years ago when DJ and I were looking for a house, I fell hook line and sinker for a beautiful but crazy little cottage surrounded by farm land which was out of our budget at £190k and totally impractical. There was nowhere to park, you had to walk down a tiny little alleyway to get to it. All the rooms were minute, DJ had to bend over to get in it and it had no gas supply, relying on oil heaters. But it had gorgeous beams, a beautiful little cottage garden and I was mad about it. When DJ said there was no way we could buy it I burst into tears! But I knew he was right and I had to accept the decision.

Would you risk entering the housing market now? Or is all the concern about house prices overblown?

 

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20 Responses to Dream home or financial nightmare?

  1. Patra says:

    The so-called recession is the work of journalists looking for something sensational to report. I bet if they changed their attitudes that in no time we would all be saying \’what recession\’?
     
    It is always a good time to buy a house and never a good time to sell one. If buying a house/home is seen as a longer term arrangement then prices that have gone up faster than income will settle down. This is good for everyone. If house buying is seen as a \’get rich quick\’ fix, I think those days are really over. Galloping prices are bad for everyone in the long run.

  2. rik says:

    It\’s easy to be fooled into thinking you\’ve found your dream home, but to me part of the dream would have to be the area it\’s in. As to entering the housing market, the chance would be a fine thing at the moment! 😉

  3. Sue says:

    The best buy is a bad house in a good area, I would never buy the best house in the worst area as the investment potential is poor.  Also think of the safety aspect. Not worth the risk.

  4. mum says:

    There is little opportunity for lending for purchasers at the bottom end of the market, so what does that tell you?My daughter has reached the point of no return trying to keep her house because the repayments are now way above what she can afford with the same job she began with. She works very hard in a retirement home.She cannot rent it out either. No one can afford the rent she needs to keep the repayments up. And lodgers have come and gone and brought her all kinds of trouble. And she cannot sell it because it is only up for sale at just under £170,000, a well-presented and decorated 3-bed mid-terraced house on a nice estate, with a nice enclosed garden and with fields at the back. It also has a nice safe walk to town, and with good public transport from there to anywhere in GB you like, and to add is close to schools/college. A first-time buyer opportunity in fact. There\’s only one problem. A young couple probably can\’t find a lender.Lenders have leant money, forced up the lending rate times over, and now they won\’t lend to other folk to help those inflicted by these extortionate moves.The result? Mass misery and mass debt, not to mention mass need for housing which isn\’t there.

  5. Stephen says:

    As an experienced mortgage broker I have to agree with Patra. Much of the current \’crisis\’ is hyped up by the media. Now Im not for a second denying the issues in the market at the minute but much of this would be containable were it not for the hype.
     
    The housing market is a funny thing in that it is based largely on perception. If people think house prices are coming down they will panic and rush to sell theirs and sell it cheap thus bringing house prices down, if they think house prices are going up or set to rise they will hang out for that extra few thousand and force people to pay that bit extra and raise house prices.
     
    Affordability is obviously an issue and I do have much sympathy for first time buyers and therefore a \’readjustment\’ in the housing market rather than a crash is not a bad thing at all. The hope would be that prices would fall somewhere between 4% to 7% maximum in the next year or so. This may sound an aweful lot but considering that house prices have gone up by over 50% in my area (Nottingham) over the last 5-6 years it doesnt look so bad. This will hurt people have bought in the last 2-3 years but this brings me to my second point that there should be a clear line between a home and an investemnt.
     
    If you purchase a home with the view of staying there for 5-10 years then the current \’crisis\’ should not affect you. Changes in house prices are not an issue if you can afford your mortgage, being in negative equity for a couple of years is not a problem if you dont want to move!  If you want to move in 2-3 years you may have a problem and investments require serious consideration. 
     
    I also agree that lenders are acting a little irresponsible at the moment and although there is justification for pulling back from the 100% market and high risk clients, they could still offer more competative rates than they are, 3 bank of England rate cuts and barely a penny passed on to the consumer.
     
    In summery Im not denying the issues in the market at the moment, but these should be containable as long as the press dont keep ramming overly pessimistic predictions down our throat. Would I buy a house now, yes I would, in fact I have 3 weeks ago. Why? I dont intend moving for the next 10 years and I can afford the payments, I took a 5 year fix rate and know that for the next 5 years its affordable.
     
    As for the people who are struggling, you may be suprised, speak to an independant broker such as myself, e-mail me on agoff@mortgageoptions.co.uk there may be something I can do
     
     

  6. mum says:

    Back again. My daughter did buy her home as a long-term arrangement who had no intention of moving house, and her situation is certainly not "settling down". The long-term subject you mention is now impossible for her, even though she has just got off the \’interest only\’ stage into the \’fixed rate now. I can see anything she made, forced to sell her home due to interest rates rising times over. And don\’t tell me this is just a journalism sounding-board. This situation is neither a "funny thing" nor is it "based on perception". My daughter is facing concrete facts, excuse the pun. As if "hype" is causing the situation to be non -contained! We have a situation period without the so-called "hype".  The situation was the cause of this not the other way around. Journalists spend their lives trying to make sense of the scribble that the rest of the world causes, just as an aside.The "readjustment in the housing  market" is too late for those most affected. This problem is about lending rates shooting off into planet \’More For Us\’ (banks), not about "house prices" going up or down. You cannot in this case use that as s deflector for the problem. If my daughter\’s "house price" goes down she has lost even more money in the long run as she struggles to get out of the ownership nightmare she\’s in because she is having to. Remember some people are having to sell their houses, not because they want to make a profit doing it. This is a real situation for some. Wake up!Paragraph four of your post tells me you have no concept of what\’s really the problem, re – my above paragraph. Call yourself a \’mortgage broker.\’ I wouldn\’t send my daughter to you for advice that\’s for sure. You are totally out of touch, not to leave out deluded, imagining "hype" is the cause of other people\’s real misery and oncoming debt with no gateway for escape, not to leave out crushed hope for future byers. You say that this "pull back from the 100% market and the high risk clients" holds justification. In my view it is the cause of the mess home owners suffering repayments beyond their budget, who took mortgages out because they could afford them at the time, and with no clear foresight of the oncoming storm of capitalist greed. You\’re right though, no one can now afford to buy anything because of it! And can you really, in all honesty and with your hand on your heart, imagine a "4% – 7% maximum fall of house prices in the next year or so"?

  7. mum says:

    Correction to paragraph one of post made on 18th April @ 13.51. I  can see anything she made, forced to sell her home due to interest rates rates rising times over, vanishing to clear the mess with the bank when she really cannot make the next payment for her mortgage.

  8. Stephen says:

    Thank you for your interesting response.
     

    I am dissapointed you felt the need to attack my proffesional integrity and opinion. I can clearly see this an emotional subject for you. i want to make it 100% clear your daughter does have all of my sympathy as does anyone in financial difficulty. However I must defend myself
     
    Firstly I assume from the first paragraph that your daughter took an interest only mortgage to begin with. Why was this? who advised her to do this? I always advise my clients that you should NEVER take an interest only mortgage just becuase you cant afford the monthly payments on a repayment basis. The reason for this it leaves you nowhere to go should you have difficulty, on a repayment mortgage if you are struggling you do have options available such as extending the term or dropping to interest only if selling is not an option.
     
    Secondly I would always advise my clients that no matter the current trend for interest rates you should bear in mind that interest could rise at any point. Any illustration we give to a client does have a figure on it showing the monthly payment if interest rates were to rise by 1%. I always ask my clients if they could afford this figure (and maybe more). Any illustration also indicates what the payments will be once their current deal comes to an end, obviously I tell them they will usually be offered a new deal, but ask if they were not could they afford this figure.
     
    Whatever you daughters situation the rate she is now on should not be much more than the lenders standard varaiable rate 7.5% (approx unless she has some adverse credit) which if she has taken her mortgage out in the last 3 years or even 5 had she \’come to see me\’ is a  figure I would have drawn her attention to and asked her to think about being able to afford. So as for your \’call yourself a broker\’ comment and \’I would never send my daughter to see you\’ comment. Maybe if she had she wouldnt be in her current predicament, I would have given her the above facts and figures and ask her to think long and hard about taking on a mortgage if she had doubts about it being affordable.
     
    To make it clear I have the utmost respect for journalists and respect the difficult job they do. However they have been predicting a housing market crash since the day I started in the industry, every few months the story would reappear. I guess they had to be right sometimes, or are they?
     
    Claiming that interest rates are the problem and not the housing market is an interesting one. Surely that depends on your perspective? If you are a first time buyer and take one of the 10 year fixed rates available surely house prices are more of a consideration the your rate which wont change for 10 years?
     
    You have also missed one thing from your comprhensive response, anybody on a base tracker rate mortgage will find that their interest rate has actually come down not up. So your statement that interest rates are increasing is not entirely true.
     
    To summarise, you can never be sure what will happen with interest rates, but if you see a reputable broker they will explain in detial the potential for interest rates to increase and house prices to fall and how you would cope if this happend, this is a far better approach than making a snap judgement based on what a newspaper (whos job it is to sell itself, would we ever have the headline house prices rise by 0.1%) may say.
     
     
     
     
     
     

  9. mum says:

    I believe I said that the interest rates rising was what had caused my daughter\’s situation, and others like her. I was not referring to the situation now, which in your words has not done a thing to alleviate the fix in any case (see the second paragraph here). And since you\’ve drawn attention to it, why has the interest rate now come down (though far too late for some) might be the question? Lender fear of greed stigmata, perhaps? That\’s like saying, in economical terms, it wasn\’t me it was the other three when brought before the jury, Joe Public. Cowards are bankers, the lot of them, who think that rises can be counter-alleviated by a measly descent after an inexcusable pole-vault times over. So of course passion is at a high right now. My daughter, just like other home owners, do not deserve this most disgraceful stack of insults. And for goodness sake don\’t get me started on bank charges…Secondly, you speak of professional integrity and opinion. Again you try to turn things about. "Three Bank of England rate cuts and barely a penny passed onto the consumer", or, "they could still offer more competitive rates than they are".Oh dear, time to go back to the thinking board for you, I think…

  10. stephen says:

    The questions are  would you risk entering the housing market now? Or is all the concern about housing prices overblown?
     
    Myself I woud not enter the housing market  because  when one looks at house prices in relation to  average earnings they are much higher than they have been  in the past.  In addition banks have made it easier to borrow large  amounts ( upto four or five times whereas in the past it was generally three times), this and lower interest rates helped to fuel the house price rise.
     
    Although there is a shortage of housing in many parts of the country and we should  be building  50% more houses per year than what we do we need more homes at £60,000 than the £250,000+ so-called executive detached which builders like to construct to maximise profits.
     
    In the north of England  young school teachers  and police officers are buying back-to-back houses which are fetching £80,00 to £100,000.  A few years ago these young peple would have been buying semi-detached with their earning power.
     
    Putting aside  the individual misery that poor-paid emplyment and past interest rate hikes have caused  its hard to see how in the short term that anything other than a drop in house prices will happen. This not  what I personally want to happen because such an effect has a magnified consequence for myself; its just thta house prices, in my opinion have gone beyond what is reasonable for people to pay.

  11. Stephen says:

    Thank you for response.
     
    I think there is a certain amount of cross wires here, in that I 100% agree with your comments regarding how poorly banks are treating their existing and new customers. I whole heartedly agree that they are taking advantage of the current situation in a massive way. They are hiding behind the current situation (using the debatable press predictions) and using it as a method to make a quick buck. As for bank charges, again agreed, these are unjustifiable.
     
    I think you have got a little confused over how interest rates work in the UK. You state that lenders have lowered there rates because they dont want to appear greedy (which i agree they are), but this isnt true. Its the bank of England that have lowered their base rate, not lenders, who continue to increase their rates. The Bank of England would not need to fear the stigma of greed, thats nonesense. If you would like me to explain in full the mechanisms of how interest rates work In full so you can make an informed comment, I am more than happy to oblige.
     
    Anyway, this was not intended to be a heated debate, merely me expressing my opinion. Which I stick by. And that is that although there clearly is an issue in the housing market and money lending markets which is (supposedly)  causing the lenders to increase their rates. However much (not all) of what we read is verging on the pessimistic side, and I feel that if you want to buy a home and dont intend moving in the next 2-3 years and you consider all options, including the potential for rates to rise, and are sure you can meet the comitments then yes I would still buy a house.

  12. mum says:

    Whatever advice my daughter received at the time of the mortgage agreement is not relieved by what you say. My daughter had an interest only mortgage at the outset, two years ago. Now she is on the repayment level.Going on the present situation, imagine if she had come to see you for advice at the time, and she was on a repayment mortgage like she is now, at last, something you say you would have advised her to do, apparently, she\’d now be advised, not able to meet the payments each month, to select an option of either 1, extending the term, or 2, dropping to interest only, which would only serve to place her in a worse situation than she is in now, effectively, returning her to the interest only mortgage she took up in the first place.On the subject of extending the term, for whose benefit exactly? Not the bank\’s surely? And this from a professional with integrity.Let\’s be honest here, the home owner on any mortgage, whatever shape or form, and which is what I have been trying to establish here, is on a losing battle because of the lending rates rises, not because of some so-called inaccurate decision regarding advice or choice. 

  13. Stephen says:

    I think you missed the point that had your daughter seen me in the first place, she would have probably left my offices seriously considering if she should proceed, as i would have asked her if she would be able to afford precisely the situation she is in now (as I do with all clients and why in 7 years not a single client of mine has been repossesed).
     
    The solutions I offer are not ideal, but when faced with this situation these are your options. The only of course is selling, which in negative equity is obviously not an option.
     
    Again I am really confused by your comment about extending the term, questioning my integrity. Why does this show a lack of integrity? I am an independant advisor and therefore do not work for any bank so advising a client to extend their mortgage term to aleviate a financial problem would not benefit me one penny! It is merely an option (backed by the FSA the governing body for the industry) when facing the prospect of struggling to meet your mortgage repayements.
     
    Again you are incorrect that the home owner on ANY mortgage is on a loosing battle is just simply wrong, as per my previous, if you are on a base rate tracker you mortgage will have come down by 0.75% in the last 4 months or so! I fail to see how this is a problem. A good mortgage advisor cannot stop interest rates rising but they can inform their client of the potential for this and the impact it may have on their client. Given the correct advice you can combat most issues. Of course not all, but we cant control everything (fuel prices, food prices, redundancies, illness ect) but we can plan properly. My belief still is that if you see a good independant advisor and plan properly then if it is your desire to own your own home then although there may have been better times to buy (obviously it would have been great to buy when houses were cheaper) the current situation need not be a barrier.

  14. mum says:

    Just as aside, how do you intend ordinary, decent, hard-working, but not terribly rich folk, to buy houses if they cannot get a loan because there is a pull back on 100% mortgage applications for instance, and on the situation of high risk clients? I can see the point of the high risk client issue, unless it affects a couple with only one as a high risk client, but what about first-time buyers who cannot raise a deposit? Are they lumped into the same category as the high risk clients now?Just by comparison to today\’s housing market, my husband and I bought our first newly-built mid-terraced estate house for £16,950.00. We also had to accept help from parents (which we would have preferred not to have done) who supplied our shortfall on our deposit, and that would be paid back with agreement along with the accrued interest at point of sale if and when applicable. Things were beginning to slide for young people back then even. My husband was from a building family, and I worked for an Estate Agent as a secretary, both aged twenty. So tell me, when ever have ordinary people ever had a good deal buying a house unless they are cash buyers, those with money as opposed to those with little or nothing?

  15. mum says:

    Extending the term of any mortgage beyond what the agreement was, merely raises the interest paid overall. What good advice is that? And if someone has to be advised to do this in the first place, there has to be a financial root problem to have reached this situation. The financial root problem here, is the inadequate funding to meet a mortgage repayment each month that has been exacerbated by rising lending rates in such a steep and repetitive way that predictions cannot attach themselves to it. More simply put, it is no good trying to say what you might have done after the horse has bolted. The result of your self-professed success of your clients is probably only based on those with enough money to have soared above the issues you\’ve pointed out, and to ride out the financial storm, and who are probably only concerned about their shrinking equity (temporarily?), which is bad enough. I was talking about clients who are affected by the rise in lending rates, and who would not have been affected if the lending rates had not risen so many times nor so high in so short a space of time, the ones who are truly feeling the squeeze now, like my daughter. You can advise anyone as much as you wish and in any way, but no one can truly advise on possible predictions. Only when they surface can we look at them retrospectively, which is what you are doing. I imagine the lenders knew what was coming though, don\’t you? The Imperfect Storm?

  16. Stephen says:

    In response.
     
    Firstly It seems that some of my message has been miscommunicated. I do not work for any bank of building society, nor do I agree with a some of their practices and feel there are things that they could do to improve the current situation.
     
    I agree that house prices are too expensive for many first time buyers (hence my prediction of a fall in prices and then hopeful levelling out) and therefore do not think a (contained) readjustment of the housing market would be a bad thing for everyone and would help bring house prices  more in line with earnings.
     
    My thoughts are, and have always been, that you should never overstretch yourself to buy a property. Owning your house is a dream but if you dont take carefull consideration before taking it on and plan effectively it can become a nightmere.
     
    But my main thought still remains that I would not be scared of buying a house now, as long as it is affordable and planned properly.

  17. mum says:

    Since the question was – "Would you risk entering the house market now? Or is all the concern about house prices overblown?", I would advise all young people, especially those with limited funds, to opt out of house purchasing and teach the fat cats a lesson!

  18. Stephen says:

    In response.
     
    Again im still a little confused as to why I am the villian of the piece. But here goes…
     
    I appreciate that extending the term of the mortgage will add to the overall interest paid and is therfore not ideal. To reiterate this is what the FSA, the governing body for the industry, and the citizens advie bureau would advise you to do if you dont want to/ cant sell your house. If you disagree with this advice from two independent bodies then that is your right. I would not say you are wrong, I merely suggest it may be better than loosing your house. But again if you seek advice from these bodies or a professional such as myself you are able to make an informed decision.
     
    Again I must defend myself over my \’self proclaimed success\’. This is not down to, as you suggest, my only dealing with wealthy clients far from it. I have arranged mortgage for people from every walk of life from people who do want to borrow £500,000 and have huge deposits to people who want to buy their 1 bedroom council flat, whose only source of income is state benefits. So no the fact I have not had one client repossessed in 7 years is not down to wealthy clients but me doing my level best to give my clients the best advice possible, telling them the warts and all of becoming a home owner and arranging a mortgage and it is something I pride myself on, hence my dissapointment at your somewhat personal attack.
     
    I must add if not said before, owning a home is not a must and may not be for everyone, I am not advocating us all rushing out and arranging mortgages and buying houses. Owning a home is a huge step and you can debtae the rent vs own argument for a long time. I simply wanted to answer the initial question – Would you risk entering the house market now? Or is all the concern about house prices overblown? And my opinion is yes I would still entre the housing market and yes I do think the concern has been overblown. But at any time, now, or when \’times are good\’ only if it is affordable and planned properly and the only way to do that is seek adive from an independent professional such as myself before taking that step.

  19. mum says:

    I think our angles centered around the issue that you could help my daughter with good advice after my first post. I cannot be held responsible for your proclamation of how "you feel". I was merely having my say, which is what this space is for. You clearly can\’t help my daughter or anyone in this situation now is the material point. Lending rates rising has put an equals on the matter of what is relative here.I  think I have made my point quite clear about the situation and in a cogent manner using good English, or as you put it "informed". To say I am "uninformed" means I never actually raised the subject I am familiar with. I am fully familiar with the subject, and so is my daughter. My decisions too are my own. I voiced them in my last post in a virtual space of what is a free-speaking country. I never invited you to reply. That was your decision.  I have not told you what decision to make, have I?I shall not be returning to this space.

  20. piper says:

    Wow – thanks for all the messages.  A message to the two sparring \’no names\’, please can we keep comments civil and not make personal attacks. Unless you\’re having a pop at me, which is allowed!
     
    Cheers,  Piper

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