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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