Buying your 1st property

Hi

I'm considering getting on the property ladder, the problem is I can’t decide whether to go for a flat or a house. I can afford both in the location I want.

I’m thinking if you can afford it then you’ve got to go for a house when you think about investment. With a house you are buying the land as well so I think the value of your property will go up more.

But my parents reckon I should go for a flat for the easier maintenance


Does anyone think a flat has just as much investment potental?

 

Interest rates are rising, repossessions are rising, mortgage arrears are rising, the average house price/average earning is far higher than at any point in my life (and I'm old enough to remember the Barber boom) + every sucker I know has bought a buy to let.

Wait until all the weak hands are shaken out of the buy to let market.

 

I'm of the school of thought expressed in.....

http://www.channel4.com/4money/mortgages/features/rent_or_buy_131003.html

 

Sounds like a CA1 question to me!

 

Don't use Foxtons!

Whatever you decide, if you happen to be buying the London area, just avoid using Foxtons. Have a look at http://www.blagger.com/db4/company_id/70/companyname/Foxtons.html for peoples not so pleasent experiences of dealing with them...

 

and the 100 year mortgage has now been introduced in the UK (it passes down to your children )

when japan's house prices got crazy high, they also introduced this mortgage... and a year or two afterwards had a nice big crash.

there's a saying in investment: "If it looks like a bubble, walks like a bubble, and quacks like a bubble, it's a bubble."

so i'd be careful if you are looking to buy.

 

Interestingly Real estate prices in Japan rose last year for the first time since 1989. Buying property in Tokyo (80% down from in its peak) ought to be a much better investment than anything in Europe or North America which are now spectacularly overvalued. Anyone fancy being an actuary in Tokyo?

 

I could potentially buy a very expensive flat, and the case is getting stronger each year, but am and have always been in two minds about the whole thing.

For years I've considered buying, gone to view places, got mortgage quotes and have performed many scenario analysis to try and understand what I'm taking on but am yet to take the plunge.

says in that article

I think this is only true in the short term. You would surely expect rents to increase with salaries/inflation over time whilst your mortgage payment would remain the same (assuming interest rates mean-revert). And if salaries/inflation mean-revert around 3-5% increase each year then this will push up prices too surely since affordability increases.

 

If your buy, then in 25 years time you own the house. If you rent, you will still be paying £800 ish a month (in real terms) untill you die, which could be another 40 years. Surely that is quite a big flaw in the argument in that article?

 

It is one thing to apply a mean reverting model to interest rates when valuing a 3 month interest rate option and quite another when looking at the lifetime of a mortgage. Interest rates tend to rise for about 25-35 years (1896 - 1920, 1946-1981) and fall for 20-25 years (1873-1896, 1920-1946, 1981-2003?).

At the moment rental yields don't even cover interest payments let alone capital repayments and maintenance.

 

Let's put our actuarial exam knowledge to use and construct models for buying vs renting for 25 years to compare. It will be fun, won't it?

 

I suspect it will still come down to a gamble on whether the property market crashes or not. Or perhaps I'm just feeling lazy...

The good news for buyers is, as long as your salary doesn't crash with the property prices, you still have a house, and the price of the next size up will be a lot more affordable.

 

Actuarial models lack sophistication. Look for instance at how the Fed models this sort of thing

www.federalreserve.gov/pubs/ifdp/2005/847/ifdp847.pdf

 

Cardano- excellent link, thanks.

 

Once you do decide to buy the next question is:

"Do I buy a house or a flat/apartment?"

If you live alone or are as a couple - as many young people do, you may think I only want an apartment.

Apartments are more managable and there are lots of new high quality builds.

Whereas if you bought a house at the same price it would probably not be built/fitted to the same standard.

Problem with buying an apartment is that they are building so many of them in cities these days that I wonder if eventually an over-supply will drive down prices? After all can you really justify spending £125-£200 k on a two-bedroom apartment on the 17th floor?

What do you think?

 

Avan, I share your concerns on over-supply of flats. Also perhaps you need to consider do you want a new-ish flat or one converted. Personally I prefer nice conversions as they seem to have more character and thicker walls.

Another thing you need to bear in mind is that you'll have to pay ground rent and service charges for flats. This could be around £1000/year in total. Make sure you investigate that also.

 

Thanks for your replies, I'll be looking into it deeply after my CT1, CT2 exams are out the way

The point that there's likely to be an over supply of flats/appartments is one I hadn't thought of and I agree with

My instincts tell me I'd be better off with a house...but next month I'll start viewing

 

cymro card -its on here and the link still works