Buy now or hope to buy later: the big property gamble

A friend of mine is in a difficult situation. He knows he can get a mortgage right now, but he sees difficult times ahead for himself financially, with precious few savings to fall back on after paying the deposit and other costs.

Buying a house can put people under great strain. If you overstretch yourself, or if you're not in the most stable position in your job or family life, it could turn out to be the biggest financial mistake of your life.
At the same time, like my friend you might see house prices rocketing out of your price range and feel there's little hope of ever catching up and getting on the ladder if you wait any longer.

Taking your personal circumstances into account, what you should do – buy now or hope to buy later – will mostly be a matter of common sense. But buying a house inspires passion, fear and other emotions, which can lead to unclear thinking.

So let's try to look calmly at the main issues to consider.

Prices never go just one way
If you look at all assets (that's property, shares, bonds, gold or absolutely anything else) you'll see that nothing rises in price forever. They can rise for many years, but they always come crashing down.

In fact, asset prices invariably fall further than they should, because humans never learn from history: we are constantly getting too excited about something and then panicking too much about it.

If your financial position is improving
When property markets crash, and they invariably do even in prime markets, they don't necessarily fall back to where they started.

But they don't need to. All they need to do is meet you part way. If you expect to save more and/or earn more in the coming years, you can patiently use this time of rising prices to improve your financial position. Work as hard at that as possible.

When the market does stumble, you'll be in a better position to buy at that point. The best and most successful investors in shares, property or anything else are the patient ones.

While my friend is expecting his financial position to get worse, it should be relatively temporary. He expects it to improve in the long run. If, like him, you expect your financial position to get better over time, you should also expect to be able to save more and afford more later.

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If your financial position will worsen
If you expect your financial position to deteriorate and not really improve again, it's understandable if you want to rush onto the market before lenders can see your worsened circumstances. However, you need to be sure it won't get so bad that you'll really struggle to pay for your home. The Government supports struggling homeowners (rather, the taxpayer does), but only to a point.

You can get insurance to pay your income or to pay your monthly mortgage costs in the event of job loss, accident or illness. However, if you're already aware of potential job loss, or an injury or illness, that will prevent you earning as you have done previously, you probably can't get the insurance cover you need.

In addition, if you know that something might come up that will worsen your finances, you have to tell the mortgage lender, even if you have already received a mortgage offer and are just waiting to close the property deal.

If you always expect to have little money
If you expect that you'll always have few savings and little spare income each month, but your family, job and financial situation is reasonably stable, you have less to lose and potentially more to gain by taking the chance and buying now.

The worst case is still very unpleasant and potentially embarrassing: being kicked out of your home, and having your meagre savings and perhaps a few other possessions taken from you. However, if you have little and will always have little, the risk is not so great compared to someone who would lose significant life savings.

It's a delicate decision.

It's not all about money
Your family circumstances are just as important. As are your prospects of continuing to find work in the area you're buying.

You can't simply buy and sell a home whenever you like, nor can you pick it up and take it with you, and nor can you easily divide it in two.

We can never be certain what will happen to us in the future, but we can think about the probabilities and possibilities.

It can be easy, when you want something badly, to ignore the risks. Don't do that. Focus on what could be a problem and think about it.

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There's no risk-free decision
Whenever you decide whether to invest your money in something, you will take a risk. You'll either risk investing now, or you'll risk not investing now. There are no guarantees as to the result.

Waiting is easier said than done for most people. You require patience and self-confidence, but neither of those are easy unless you have a deep understanding of how markets rise and fall.

Patience is particularly difficult when the mass media, and mindless "experts" cited in the media, get their forecasts wrong – which they do so often.

Learning about investing and behavioural investing, as well as about asset markets and forecasting (or rather, the inaccuracy of forecasting), would help you to better understand your prospects, the value of patience, and your own mind.

What do you think? What questions would you ask before deciding whether now is the right time to buy? Let us know your thoughts in the comments box below.

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10 top ways to add value to your home
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Buy now or hope to buy later: the big property gamble

Of course with all these things, the value it adds depends on the property you have to start with, and the kinds of improvements you make, but Which? estimates the cost of a new kitchen at £8,000 and HSBC calculates the added value to your property at £4,500 - which is a clear loss.

This has been done by 41% of people in the last three years, and 29% of people plan it in the next three. It's cheaper than a kitchen, and Which? estimates the cost at £3,000. This is roughly the same value that HSBC says it will add to your property - so you'll break-even.

It may be difficult, but getting your property ready for sale means depersonalising it. 

Clutter can distract viewers and more than half (60%) of the property valuers who took part in the 2012 HSBC Home Improvement Survey said that the number one way to increase a property's chance of selling quickly, and for a good price, was to de-clutter.

This has been installed by 31% of us in the last three years, and 15% plan it in the next three. Installing central heating is a disruptive job, and according to WhatPrice it will cost you around £3,235. However, this is the first of the top ten to actually pay off. Property expert Phil Spencer says it will add £5,000 to the value.

A quick splash of paint can work wonders on tired-looking walls, and sticking to neutral tones is the safest bet.

Keeping the colour scheme simple, fresh and inviting will help potential buyers to see themselves living in your home.

Some 18% have added one in the last three years, and 30% will in the next three. This is another huge job, but with more people struggling to move and deciding to improve instead, it's increasingly popular. The amount it costs will depend on an enormous number of things, from the area you have to work with, to the size of the extension. However, assuming you add a single room you could spend around £20,000. HSBC estimates it will add around £15,500 to the value of the property, so you are unlikely to gain as much as you spend.

According to Halifax valuers, loft conversions - which require lofts with a roof height of at least 2.4 metres - are a good way to increase the potential sale price of your home.

Be sure to stick to your budget, though. The average loft conversion will cost between £10,000 and £30,000, while HSBC's figures show that they typically add £20,876 to the value of a property.

Putting in new windows adds around £5,265 to the value of the average property and can reap big rewards when it comes to energy efficiency.

It is, however, sensible to ensure that your new windows are in line with the style of your property to maximise the added value - particularly as putting them in can set you back about £5,000.

Off road parking or a garage can be especially advantageous in areas where parked cars line both sides on the street.

Nationwide's figures show that adding a garage, which can cost anything between £8,000 and £25,000, can increase the value of your property by 11%.

Outside space is just as important as inside - especially when people are seeing your home for the first time.

While 63% of the HSBC survey expert respondents said that repainting or varnishing a front door would make a difference, only 23% of homeowners recognised this. Peter Dockar at HSBC said: "It is often the smaller jobs like painting the front door that can make all the difference when looking for a sale."

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