Buying a house to live in must, and I repeat, MUST have a timeframe of at least 10 years.
Experience and financial prudence determines this is the minimum time frame to realise the gains. Importantly, it also means that some of the costs incurred when buying, such as stamp duty, legal fees, moving costs and the like will be amortised over an extended period.
It also means that any price movements over 6 months or a year or even 2 years in your new house are all but irrelevant to your emotions and self-assessment of financial wellbeing.
You should, for example, try to ignore the fact that a few years after you bought your house its price has risen sharply, if indeed that happens.
Shrug your shoulder and say “so what”?
Presumably you are not going to sell it and, what, move into a tent? And any bigger and better house is likely to have risen sharply in value so that idea of upgrading isn’t yet realistic.
What’s more, you are unlikely to have paid down much of the principal in the first few years of home ownership meaning the improvement in your equity in your house is handy, but not yet a life changing event.
What you should do is merely keep up or even accelerate your repayments, keep maintaining and improving the property and enjoy living in your new abode.
The same is true if house prices drop in the year or two after you buy. Again, “so what”?
You have a plan to live there for 10 and more years, and you can continue maintaining and improving your house and living in it. Again, try to ramp up repayments and chip away at the principal.
After 10 years, the financial robustness of your house purchase will be tested. The gloom merchants of housing and house purchase have a shopping list of why it is always a bad time to buy a house.
They often mention mountainous risks and difficulties saving for a deposit, getting a loan, borrowing so much money and on and on it goes. Exaggeration works wonder in terms of the profile many of these noisy and melodramatic property bears gain.
Sure, some of those risks have some validity, but there is also a risk your wonderful new house will be hit by a meteorite and smash into your newly renovated kitchen.
The issue in buying a house is being aware of those risks, judging just how realistic any of those risks are and having some backup and contingency plans in case they happen.
One of the most obvious risks in buying a house is a rise in interest rates. Falling interest rates are obviously good news for those with mortgage debt, but it is rising interest rates that hurt, especially in the early years of a mortgage.
No one with a mortgage would welcome higher interest rates. To service that same sized
loan, higher rates means diverting cash flow from other areas of saving or spending to
meeting the extra interest costs.
This is why lenders now require the loan they are preparing to give you to be framed with an interest rate at least 200 basis points – 2 percentage points – above the rate being charged at the time you apply for your loan.
If you put those numbers into your mortgage calculator and can still manage, you have little to worry about.
In all, buying a house to live in is immensely satisfying, financially beneficial and is life changing. When home ownership rates have been falling, for a raft of reasons, it would be disappointing not to see current market and price moves as an opportunity for home ownership rates to increase as cashed up first home buyers use the rare cocktail of falling prices, rising wages and entrenched record low interest rates to buy their first home.
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