First time buyer concerns

hveuydsydsi

Folks,
I’m 23 and I’m in the process of taking my first step on the ‘property ladder’ and I’ve got a few questions for those of you who have gone before me.
I’ve purchased without any help from anyone else and my repayments will be very manageable in relation to my income.
The apartment is in a good location, and considered a decent purchase price in todays climate.
Anyhow I’ve got a few questions.
Am I really buying at the very worst time?
Everywhere I look there’s a lot of doom about property purchasing, IE the big drop off in valuation/price is very nearly upon us and when it does apartments that were worth 300k will fall to 150 or below.
Just how likely is the above scenario?
I had this conversation with my brother and according to him when he bought in 1994, people were telling him that he was paying crazy money, and now it’s worth ten times more.
I realise there’s not a chance of a property worth 300k in 2006 being worth ten times that in ten years time, but honestly how likely is it that it will hold it’s value over the next couple of years?
My plan is to work for the next couple of years and pay off as much of the mortgage as possible and if then I want to go travelling at the age of 28 or 29 for a year I will be in a position to do so.
How realistic Is this idea?
Has anyone else done so?
Flicking through the threads on this board I can see that there’s a lot of negativity and while it wouldn’t be enough to put me off buying the apartment, it is worrying.
Were people giving the same warnings a couple of years ago?
If you were in my shoes what would you do? Proceed, pull-out?
I probably am rambling in my post, but I’m trying to weigh up the pros and cons.

Pros
I will have a place of my own to live and no longer need to rent.
I will have made my first step on something I was going to do at some point.
It may give me greater independence, IE in five years time I could possibly travel.
If my income rises and so does my property I may one day be able to invest in a second property.
The repayments are manageable.

Cons
Interest rates could hit 15% in a year and I’d be paying a hell of a lot more in mortgage.
Rental income may continue to stagnate
Mortgage could end any chance of travelling in my late 20’s.
The market could go belly up and my apartment could be worth half of what it’s currently worth.
I don’t work in the civil service/state/Guards so there is little job security, what if my job was outsourced and how would this affect my ability to pay.
I’ll get old a lot faster- old person mentality!

Any advice folks?
Cheers

Gone West

no. Since the late 90s the universal advice in Ireland was to buy buy buy buy buy!
now, there shows signs of a possible slowdown (note, not a decrease!)
Just a slowing down of the rate of house price growth.

So the advice now is just "buy buy"

Cantab.

hveuydsydsi wrote:

Folks,
I’m 23 and I’m in the process of taking my first step on the ‘property ladder’ and I’ve got a few questions for those of you who have gone before me.
I’ve purchased without any help from anyone else and my repayments will be very manageable in relation to my income.
The apartment is in a good location, and considered a decent purchase price in todays climate.
Anyhow I’ve got a few questions.
Am I really buying at the very worst time?
Everywhere I look there’s a lot of doom about property purchasing, IE the big drop off in valuation/price is very nearly upon us and when it does apartments that were worth 300k will fall to 150 or below.
Just how likely is the above scenario?
I had this conversation with my brother and according to him when he bought in 1994, people were telling him that he was paying crazy money, and now it’s worth ten times more.
I realise there’s not a chance of a property worth 300k in 2006 being worth ten times that in ten years time, but honestly how likely is it that it will hold it’s value over the next couple of years?
My plan is to work for the next couple of years and pay off as much of the mortgage as possible and if then I want to go travelling at the age of 28 or 29 for a year I will be in a position to do so.
How realistic Is this idea?
Has anyone else done so?
Flicking through the threads on this board I can see that there’s a lot of negativity and while it wouldn’t be enough to put me off buying the apartment, it is worrying.
Were people giving the same warnings a couple of years ago?
If you were in my shoes what would you do? Proceed, pull-out?
I probably am rambling in my post, but I’m trying to weigh up the pros and cons.

Pros
I will have a place of my own to live and no longer need to rent.
I will have made my first step on something I was going to do at some point.
It may give me greater independence, IE in five years time I could possibly travel.
If my income rises and so does my property I may one day be able to invest in a second property.
The repayments are manageable.

Cons
Interest rates could hit 15% in a year and I’d be paying a hell of a lot more in mortgage.
Rental income may continue to stagnate
Mortgage could end any chance of travelling in my late 20’s.
The market could go belly up and my apartment could be worth half of what it’s currently worth.
I don’t work in the civil service/state/Guards so there is little job security, what if my job was outsourced and how would this affect my ability to pay.
I’ll get old a lot faster- old person mentality!

Any advice folks?
Cheers

You seem to be in a typical situation as far as the majority of young people are concerned (i.e. just finished your stint at the undergraduate farm, sorry, I meant university of course).

Let's try to split the issue you have somewhat: Firstly you need somewhere to live and secondly you want to make your money work for you (i.e. investing your money in property).

Dealing with the latter issue: Risk is essentially the number one factor in making any investment decision. You can measure risk to a certain extent, but there comes a point where you have to enter the realm of the unknown and just take a jump. I would say that all the warning signs are there to indicate increased risk in property as an investment: general bearish sentiment, reducing afforability, slow-down in the number of units being built, stagnation of rents, increased numbers of propertry for sale etc., etc. For me personally, I would say that at present, investment in property comes with very high risk - The tipping point between having confidence in the market and being to make reasonable predictions about the future of property vs. instablility, high risk and gloomy market sentiment has, AFAIK, recently been reached.

As regards buying a property so as to satisfy your fundamental human need: i.e. having a roof over one's head, your only concern is your ability to pay off your mortgage. Your ability to do this is independant of the property market and is essentially a function of a) having a job that can service the repayments and b) Eurozone interest rates staying at reasonable levels. I would say that interest rates should stay relatively stable and I would not be overly concerned about this, but the greater risk for you, AFAIK, is the domestic Irish economy which could lead you to losing your job. As you stated, you work in the private sector and said there is the possibility that you're job is outsourced - this is the major risk that you must consider. I would be mildly concerned about the global competitiveness of the Irish economy. For example, I work in telecomms, and part of our company was outsourced to an eastern european company. The head office are concerned about rising costs (we're an intellectual organisation and therefore pay is the major cost) particularly since the unions are trying to negotiate a new round of pay talks to the tune of 10% over the next 3 years on top of existing committments.

Go with the mortgage though if you feel the risk is acceptable and you you're confident to make that jump. Only you can make this decision. I hope, for your sake, that the storm clouds keep at bay.

antoinolachtnai

What is all this bearish nonsense? Is there any survey showing that the market is bearish?

Who exactly has told you that properties might fall in value by 50 percent?

I wouldn't pay too much attention to a couple of naysayers on boards.

That isn't to say that in the medium-term there aren't big issues to be addressed. But there just isn't that much negative sentiment about.

Good property will always be good property. Poor property will lose its value quicker.

What will actually happen in a 'slow down' is not that property will drop in value, but that houses will not grow in value as fast and will take longer to sell, as the market becomes a buyer's market rather than a seller's market as it is today.

I would say that you might as well keep doing what you are doing, if only because you would have to pay rent if you didn't purchase. The rent might be a little less than the interest you are paying, but probably not that much less.

You can always hedge your interest risk a little by fixing your rate for half your mortgage. But you might be as well to just pay down your variable rate as fast as possible, thereby giving yourself breathing space later on.

You are right to watch out for old-person mentality. To be honest, being under pressure to buy a property for the first time at the age of 30 is more likely to give you old-person mentality than what you are planning on doing.

Sarn

If you can afford it then it shouldn't be a problem. You are buying to live in it, so if prices fluctuate it shouldn't affect you to a great degree until you come to sell.

Personally, I have been looking for somewhere to buy up until recently, however I've come to the decision that there is too much madness in the air at the moment. I also know that I would be overstretching myself. Increasing rates reduce the amount of money people can borrow (with stress testing etc) so it will be difficult for people to get the return on their property in the short term (only a worry if you have an interest only mortgage and are depending on capital appreciation). However if you're living in your own place, with no immediate desire to trade up there shouldn't be a problem.

You seem to be confident in what you are doing and are comfortable with your ability to make repayments, a home is a home.

You might want to have a look at this thread. It gives both sides of the debate.
http://www.askaboutmoney.com//showthread.php?t=29615

Moonbeam

once you are comfortable with the mortgage repayments and you like th eplace buy it.
Do remember do factor bills etc in to your living costs aswell as mortgage.
I bought last year my house has gone up over 50% in value so when I do get older and go to do the whole travelling hting I can rentmy house out or sell it and use the profits to fund my travels:)

The_Conductor

A few points:

Congratulations on your first steps on the Property Ladder.

ECB interest rates are unlikely to go higher than 4.5% in the short to medium term (they are now expected to finish 2006 at either 3 or 3.25%). Your own mortgage rate will of course depend on what deal you have with your bank. It would be sensible to try to lock in at as low a rate as possible immediately, rather than going for a floating rate or tracker product (that most of the country appears to be addicted to).

Re: House prices falling. There are a lot of people with all sorts of predictions. You can never tell whether prices have hit their max until some point in the future when you can look back and view historic data with hindsight. As a function of prices versus multiples of salaries- yes, prices are at historically high levels. At the end of the day- what matters is affordability. Can you afford to repay your mortgage. If interest rates rise by 1.5-2% (as is likely) will you still be able to make your repayments. Ultimately at the end of the day as your property is not an investment property- it does not really matter whether it rises or falls in value. It would have to rise in monetary value by almost 5% per annum just to keep pace with purchasing power (allowing for inflation etc.). So any increase of less than a critical level is a defacto fall in value. To state that property may fall by 50% is pure speculation. If prices do not rise any further but level off- and inflation proceeds as forecast over a six year period, while your house may be worth exactly the same in absolute terms- in real terms it may be worth 34% less than it is in todays terms. These things are all relative- your salary will be a lot higher in 6 years time, and other asset prices will naturally have changed (or not as the case may be). So a decrease in the value of a property may mean nothing in relation to its monetary value.

As antoinolachtnai puts it

Good property will always be good property. Poor property will lose its value quicker.

There is a perception that apartments or leased property which involve annual management charges *may* be poor property- then again the three tenements of buying are of course- Location, location, location. A property in a good location, regardless of what type of property it is, will always be preferable to one in the arse-end of no-where.

At the end of the day buying a property has, alike everything in life, a degree of risk attached to it. Providing you can pay the mortgage and have a degree of leeway to take interest rate increases and other unforseen costs into account, and are willing to accept the level of risk associated with your purchase- off you go.

Younger people on 100% mortgages with LTE ratios will pay higher mortgage interest rates. The best advice anyone can give you- is shop around, the financial institutions are very competitive and will offer inducements to keep you out of their competitors hands.

Good luck.

FillSpectre

If you buy the best property you can you should do OK. People often say you can get so much better value further out misses the value of certain things.

No school near a place=All kids get driven to school, major traffic close to you. You will have to drive your kids
No shops close by= If you want a pint of milk for your child how far will you have to drive?
Commute distance long but time not so bad= The time will just get worse as the space between your place and major employment etc.. gets built on.

Person choice and interests are important of course. I like to travel so living too far from the main airport was a nongoer. If I was sailor being away from the coast would be an issue.

If buying you nee to make sure you don't over pay for your personal desire as you must consider resale unless you are really rich.

I think investment is not a really good idea at the moment unless you plan to add value.

homeOwner

hveuydsydsi wrote:

I’ve purchased without any help from anyone else and my repayments will be very manageable in relation to my income.
The apartment is in a good location, and considered a decent purchase price in todays climate.

This is half the battle, actually its more than half the battle. You are obivously a good saver, and clever with your money to have saved enough at your age to buy on your own.

hveuydsydsi wrote:

Am I really buying at the very worst time?
Everywhere I look there’s a lot of doom about property purchasing, IE the big drop off in valuation/price is very nearly upon us and when it does apartments that were worth 300k will fall to 150 or below.
Just how likely is the above scenario?
....
I realise there’s not a chance of a property worth 300k in 2006 being worth ten times that in ten years time, but honestly how likely is it that it will hold it’s value over the next couple of years?

If you can well afford the property at your current salary you will definitely be able to afford it later on, in fact your salary should increase alot in the next 6-10 years considering you must be only at the start of your career so you will be more than comfortable with repayments and still probably manage to save quite a bit of cash.


You will always need somewhere to live and if it is well within your budget then it makes sense to not be throwing money away in rent for the next 6 years until you decide to travel. And when you go away the apartment will be there for you earning money (ie having the mortgage paid off by someone else).