You know that moment when someone says something and although you’ve known it all along, the truth of what they say suddenly hits you the moment they say it? Well, I’d like to share a particular moment with you that happened to me the other day as I was showing a couple round a house which crystallised for me why NOW really could be the time to buy a property.
It was a couple in their late 20’s who have been in rented accommodation for a year. They had sold their property and put the money in the building society so that the interest would pay their rent while the property market settled down. A year ago they were earning a decent rate of interest, now, as we all know, it’s pitiful and not nearly as safe as it once was!
They’ve secured a good 5 year fixed rate mortgage at about 4.65% so they know with certainty what they are going to be paying for their mortgage and I asked them why they thought NOW was the time to buy a home and this is what they said….
“We’ve watched house prices come down over the last year and they are so much cheaper than a year ago. Of course it’s all relative but even if they do dip a little bit more we can get a great house for our £200,000 and it’s time we put down our roots.”
All well and good you might think and that all makes good sense but then came the moment of revelation….
“If we buy at £200,000 and the price drops a bit more in the short term” they said “it will certainly rise again over the next 5 years and whatever we pay off our mortgage, the money’s for our benefit. We’re currently paying £850 per month in rent, which, in the next 5 years is over £50,000 of our money going to someone else”!
I’ll just rephrase that; they will pay out over FIFTY THOUSAND POUNDS in rent over the next five years!!
(Read that sentence again….slowly!) And that was it - when it’s said like that, it just hits you doesn’t it!!
Ok, so they buy a house at £200,000 and if they had to sell it again during what we all know is going to be a tough 2009 they might find they sell it for £190,000 and they’d lose £10,000. The chances are however that they won’t have to, the market picks up, lots of people who have sold and gone into rented over the last 18 months have the same idea and demand for properties starts to rise again. Mortgage rates are incredibly low and most predictions are that they cannot stay at these levels for a sustained period of time. Over the next 5 years will that couple lose out? I don’t think they will for one minute….unless they pay over £50,000 in rent!
It’s not rocket science and the basic laws of supply and demand apply as always. There are still people who have to sell and there are more and more potential buyers who are thinking that property is on the cusp of being a good, longer term investment again at the prices we are currently seeing. After all, do you really trust the bankers and share dealers to look after your inheritance and investments where share values in the likes of Bradford & Bingley, Northern Rock, HBOS, Lloyds and Royal Bank of Scotland to name but a few (all former “blue chip” companies) have plummeted or become literally worthless? Or, would you rather live in and enjoy your inheritance and investment at the same time? Share values can literally disappear overnight – when you own a property, it’s a tangible asset as well as a home. I know which path I follow and it takes me straight to my front door!
And as for our young couple? Well, they feel they’ve stagnated long enough paying rent (and someone else’s mortgage!) and they just want to get on with their lives. I rather suspect, put like that, it doesn’t just make good sense, it makes PERFECT sense.
Stephen Pring
“Without doubt Stephen Pring is one of the most professional people that I have had the pleasure of dealing with in the eight house purchases over the last 20 years”