SupaMiniCupa

I'm a bit of a newbie to the site, but have been reading this room a fair bit recently, and you guys seem to be knowledgable on most stuff so I've got a question on property...

Myself and two other single lads are thinking of moving out of our respective parents houses, to share a house. Whats the best way to approach it?

We were thinking of buying, but i'm not so sure about that given the uncertainty over a house price crash. So, we're looking at renting. Plan would have been to look to sell up at the end of 5 years.

None of us have ever been away to uni etc, so have been at home for all of our 24 year lives! Is buying too big a step to start with? Is it better to test the water and rent first? Maybe for a year or so? What would suit us better financially given we plan to redeem early?

Does anybody have any advice on the day-to-day practicalities of running a household like this? Any help gratefully appreciated!!

Feel free to ask any questions on stuff I may have left out!

Cheers!

Tim.

davegtt

cant see you making any sort of profit on a house in 5 years the way the market is and if the housing market does fall (wont crash IMO) then you'll be close to negative equity. you have to be sure u can live with these other lads, OK good friends an all but do u know their habits, what happens in a years time, u get a misses, settle down and need your own space, getting a morgage is a silly idea IMO. renting would be much better suited, people can walk when wanted/needed. u never know whats around the corner

my opinion is to rent for a year, get to know each others living habits and watch the housing market and take it from there

Buzzer

Renting is like flushing money down the loo, buy the house next year after the interest rate hikes and the initial shock of house dropping in value.

Pick a house up in a buyers market, the average cycle for houses peaking and then subsiding is every 7.5 years IIRC so if you keep it that long you will make a tidy profit

Ever thought about buying a property abroad You could get a holiday out of it and have something that will make more money with less outlay than in this country...................... but do your homework

Just a thought

camk

don't get involved in buying with 3 mates, its pretty certain that you will not be able to maintain a 5 year commitment and someone will end up selling up to buy somewhere with their new girlfriend. Then you need to pick up the share between the other 2 and it might be financially difficult. Renting at least makes it more flexible. Just from my experience

camk

BTW paying interest is the same waste of money that renting is so its just a traditional British view. That theory only works if house prices rise.

davegtt

camk, is it ek as like, on my morgage Im paying about 500 a month on a repayment morgage, even if 350 of it is going to interest Im still paying £150 a month of my investment where as the same house in this area would cost £600 to rent and it'd all be going down the drain.....

Buzzer

camk

I think your *if* should be substituted with a *when*

Brendan Hughes

Rent. It's easier to get out when one of you kills another one.

camk

yes but rent stays the same while interest rates rise , I would also check that rental versus mortgage cost comparison, this rental money down the drain thing is a myth, its no difference than interest money down the drain.
Renting is more flexible in a static property market, there is no black and white answer and different things suit different situations. In this circumstance, as described, it makes no sense to buy, 3 young lads moving in together at the peak of property prices....

Buzzer

Well i agree with your last sentence mate

Brit_in_Japan

You may get on perfectly fine as mates now, but housemates? This may sound strange but sharing a house with two old friends can break friendships. You might all be quite laid back and prepared to tolerate each others' idiosyncrasies, but when you share a house you are with your housemates virtually 24 hours per day and little character quirks which you might not even notice now can irritate the hell out of you and in time can lead to a lot of friction. If they are good mates do you want to take that risk?

I'm not saying it will necessarily turn bad, but there is a risk that the three of you should consider. I have had many housemates and some have become life long pals whilst others I would never want to see again. I have also house-shared with a friend I've known since school and it was definitely a strain on the friendship. We became better mates again when we stopped sharing a house.

For what it's worth, my suggestion would be you each move out but into different rented places. You will make new friends, both in the house you share and your friends houses when you drop in on them.

fast bloke

I always advise 'mates' to rent together for a year first. Have had a few who have insisted on buying, fall out 6 months later, can't afford the house between 2 so put it on the market. Sell it for a couple of grand profit, subtract stamp duty, redemption fees, solicitor costs and estate agent costs and come back and winge at me that they all ost money. Given the current situation, house prices are fairy stagnant at the mo. I can't see a big change either way for a few months until people become more comfortable with what they think rates might do. You might end up marginally worse off renting for 6 months if prices start to climb, but you are not taking an unknown risk, as you are already taking one unknown risk buying with your mates. By renting first you find out of that is likely to work and you can then decide if you want to buy together. (If you do decide to buy together, look for a lender that will aloow you 'tenancy in common' instead of 'joint tenancy' - That way one of you won't get stiffed completely

MattW

Rent first.....god I even went on holiday with my best man, haven't seen\spoken to him since. And that was a two week holiday!!!

Graz

Provided your in an area where the house prices have settled and are not going up significantly the rent for a while. You have nothing to lose, the rent on my place would just cover the interest on a mortgage to the value of the property. All this paying rent is money down the drain speak is rubbish.

See what the markets do, see how you get on with your mates, and then if the market and your personal situation is right then buy.

I'm in the same situation now though I would be buying a house by myself. Like I say can't hurt to wait and see what happens, property prices are static in this area so I think the peak has been reached, just waiting to see if there will be a "correction"

Old_Fart

Scare story...I bought my first flat in 1989, for £50k. 8 months later it was valued at £30k, and I tried to sell it in 1991 and couldn't at £26k.
In the end I held onto it untill last summer and sold it for £75k..property should be viewed as a long term investment
Also the renting = throwing money down the drain brigade....only applies if the property market is out performing the risk free rates.
Imagine I had £1mio in the bank...I'm making like 4.75%X£1m = £47,500 a year, after tax that gives me £548 a week to spend on rent(well thats not including compounding so is conservative). If I bought a property with it instead I'd get zero interest and all the costs involved with being an owner... it isn't as cut and dried as it appears.
Cman

Buzzer

I'm sorry but i just cant grasp this rent thing

My brother in law has rented over the last 10 years. Now his rent hasn't really gone up that much in ten years. So, you would think "aaah put the extra saving away for our deposit" and to a certain extent he has put away BUT IN REALITY he has spent a lot of the money on every day things like "OOoh we need a new washing machine" or "My God that Tek3 custom map is a good deal" and invariabley that "savings" money has had a large dent put in it.

Now, 10 years ago he was looking at house prices at around 65 - 75k. He has now returned to look at the same houses to see if he can afford to buy one now. Sadly the same houses for 65k 10 years ago are now 170k!

So the house price has risen over £100k. I just cant see where he's benefitted from renting, can anyone please help me out here coz i'm having trouble understanding the plus side of renting when you can afford a mortgage.

Granted i live in the North West and us thick northern monkey's haven't had the bigger problems you Southern Nancy's have had, does this have some bearing on our differences?

Dracoro

Buy when prices are going up, rent while static or going down.

What most people forget is that for the first many number of years, you are NOT paying back what you owe on the property, you are paying back the interest. A very small percentage is paying back the actual equity.

For example, let's assume for the sake of the argument that prices don't rise over the next 25 years. For the 1st 10 years, nearly all your repayments are on the interest. So after 10 years you sell up, you won't have actually paid hardly any of the property value up at all. The flipside is that in the last few years of your mortgage, nearly all the money you pay is actually paying back what you owe and not interest.

So property as an investment only works if it rises in value. Also a £100,000 mortgage, you'll repay over £200,000 (actual figure depends on the interest rate over the 25 years of course!) so the property will have to at least appreciate £100,000 over the 25 years just to break even.

SupaMiniCupa

Thanks for the replies people - every one of them useful! Given me some food for thought definitely!

If anyone has any further thoughts please fire away!

Cheers!



Tim

imlach

Camk - we've been here & done that argument about renting v mortgage interest.

Agreed mortgage interest is money "down the drain", but it ALSO is a means to an end. It allows you to borrow money and end up in 25 years with you FULLY owning your property.

Renting over 25 years results in ZERO assets and nowt to show for pouring that money down the drain.

Come retirement, it's nice to know your measly pension does not need to cover rental costs.

Tim-Grove

Me and 2 of my mates are also thinking about doing the same thing next year, looking at 3 bed semi's in Codsall which are going for about 200k at the moment. Think we're gona a contract drawn up by a solicitor for us to say we're gona be in it for at least 2 years before the contract is reviewed.

mattsan

Its not money down the drain on a mortgage if you get the right advice and get an offset mortgage.Its saved me on average 150 a month just by changing mine.

imlach

Not quite true. Interest on a loan is money not working for you.....therefore it is going down the drain. However, as I said, it's a means to an end. Not many people have access to 0% mortgages

pslewis

Certainly, round here (North Hampshire/West Berkshire) houses coming to the market are significantly lower than just 2 months ago.

Look at all the signs - they all point to a falling house price market

These things have a funny mind of their own, so much is built on peoples confidence - if people see prices falling they don't buy, causing a bigger drop, they don't buy again .... then, after 3 years they have fallen so far that people wake up and buy again - up they go!

Its a cycle that happens everytime - this time is no different, I would say rent and buy into the market in 2007 when its on the floor (it will pick up again in 2008)

This time I'm going to be ready and will buy as many houses as I can!

Pete

fast bloke

Pnce again Pete makes use of an opportunity to forecast house price crash. Pete - I bet you also do 'accurate' weather forecasts. Every night you tell people it will rain tomorrow, and sooner or later.....

Dracoro - you sums don't quite add up. Say house prices are static and rent and mortgage payments are similar. At the end of 25 years you will have paid 200k in rent and have nothing. I will have paid 200k in mortgage payments and have a 100k house.

The chances of property not increasing significantly over 25 years is quite slim. Look at any 25 year period since mortgages became available for the 'mainstream' in the 20's. My in-laws have had a family house since 1936. Grandparents bought it in 1936 for £16, which he told me was about 1 years wages at that time. They had a large family and sold the house to the eldest son in 1954 for £800.00 (no idea how that relates to salary of the time) Again this son had a large family and sold the house to one of the sons in 1996 for 60k. Average salary of the time would be around 20k give or take? House has recently been sold for 180k, while the average salary might now be 25-30k. Buying almost always makes more sense in the longer term, but the fees involved and short term uncertainty make is less than ideal if you think it might only be for a year or two

dpb

..............we gotta wait another year for the market ta crash Pete............

mattsan

True your right in what you are saying any loan is money not working for you,but its just with an offset mortgage you defently paying less for lending the money than with a normal mortgage,cos all your savings and wages are helping to bring the mortgage down. 0% mortgage would be nice tho

fast bloke

I love offset mortgages - mainly cos I get paid twice as much for setting them up

Dracoro

Of course. The point was in the short term, 5 years is what the original poster is looking at, it might not be as good an investment as people might think. Long term it is a good one as prices have always risen enough to make a profit on top of owning what you've paid for. I was looking at it purely on an investment basis.

To the original poster. My advice would be to live with your mates for a year to make sure you really get on and also to see how the market pans out. What with fees, deposits to raise, stamp duty, mig etc. and the unlikelyness of the market going up much in the next 12 months, it's unlikely you'll lose out compared to renting.

imlach

...well, not quite as much as you might think. Offset mortgages usually charge the standard variable rate due to the "benefit" of the offsetting feature. So, you're not getting the best lending rate around.

Your savings could be earning 4% or so in a modest savings account if not being used in the offset mortgage....so your net gain is only something like a 1% saving in interest....

Be slightly more adventurous with your savings, and that "saving" is wiped out.

Offset mortgages are not quite the no-brainer you think, but a useful method for some if that's the way you want to go.

camk

All I'm saying is that there is no black and white answer , whether renting and buying is best is dependent on personal circumstance. Personally I do both currently because it suits my circumstances.
We currently have a higher probability of a price crash than a price boom, its may turn out to be a 'soft landing' it may not. I personally would not encourage anyone to enter into the property market right now on a highly geared loan. We have further potential interest rate rises and a probable price drop, at best price stagnation. Which in the former will make the loan difficult to maintain and the latter remove flexibility of lifestyle. Both together would be financially crippling for a long long time if the home is taken back by the bank.
Anyone who believes property always goes up is a fool, its up and down and unfortunately what happens in your life does not always allow you to sell on the upside. Ask those stung by negative equity in the last crash.