July 2010

After June`s optimism July takes a downturn.

I read a report that says that house prices are expected to fall because more people are wanting to sell than buy. This is because of the effect that the Tories are having on people`s confidence and also the abolition of HIPs is making it easier to be a seller. But surely most of those people who sell will then become buyers?

I become further worried and depressed when I see BBC programme that says that interest rates will begin to rise sooner rather than later and that we should expect rates to be around 6% as that is the norm. 6% would definetely blow us out of the water and we would probably lose both houses. This is very worrying indeed.

Some good news combined with some bad news. A large accountancy firm predicts that because of the Tory deficit plans, interest rates will need to stay at 0.5% until 2014. 0.5% will become the norm. This is great news but the report also predicts that house prices will fall by nearly 25% over the next 3 years. That would be a disaster for me and my family but I  don't see how anybody can predict such a big movement, it must be guess work.

Its official, according to the Nationwide house prices have fallen by 0.5% in July. Is this the beginning of a big slide? Should I start to panic now? Should we be thinking about selling our second property while we still can?

I am torn between trying to relax and take things as they come but risk being too complacent or constant worrying which seems to be a by-product of monitoring the situation closely.

June 2010

The Tories are in government and just like the early 1980s the economy and jobs are looking bleak. This is having an adverse effect on people`s confidence to make a house move.

A memeber of the BoE committee votes for a rate rise but it still looks likely that there will not be a rise for some time.

On the plus side, also, I get a small bonus at work and we manage to rent out our garage which will be a welcome further source of income. I am able to pay off a further chunk of the money I owe to my Mum.

May 2010

We have a few days holiday at Butlins, I would have preferred to have gone without a holiday this year and put the money towards the family budget deficit but I can't deny my wife and kids so we go and have quite a good time. I am bit annoyed that there is so much extra to pay out for as the ads all impled that most things on the site would be free.

The Bank of England are now hinting that interest raters will be on hold until next year so things are looking good.

I manage to transfer most of our credit card debt onto interest free cards so am able to pay back some money to my Mum. The family budget deficit is coming down slowly but I had hoped that it would come down a little bit faster than it has so that makes me a little uneasy.

April 2010

The Nationwide are still saying that house prices are creeping up. This is some comfort but I am still thinking about our rented property which appears to have fallen in value.

March 2010

I saw that the house next to our old house was up for sale at £205,000. This was a big blow to my confidence as our house had been valued at £225,000! The estate agent said that our old neighbour wanted a quick sale. Also ours had a conservatory so that would add a few thousand to the value. Nevertheless it was a bit depressing.

February 2010

We had been in the house for around six weeks, it was beginning to feel like home and I had decided to stop worrying about things that might happen and just deal with things if they did start to go wrong.

January 2010

I was in the car on the way home when the newsreader said "The Bank of England has decided to ........... keep the base rate on hold at 0.5%" . Phew what a relief. I remember thinking to myself  am I going to have my heart in my mouth at this time every month?

My Family

We have been married for just 3 years and have a three and a half year old boy and a two year old girl. They are gorgeous but mischievious, especially our little girl who is into everything and has a wicked laugh. We are in our early forties so the children can be a bit tiring. I work full time in a semi management clerical position and my wife works 2 shifts a week in a call centre. 

The Financial Tightrope

So in order to move into our new home we needed 2 mortgages, the buy to let mortgage cost us £5000 (what a rip off) and was a whopping 4.70% tracker - remember the Bank of England base rate is 0.5% (what a joke.) Technically we were "letting to buy" not "buying to let" but the administration charge was still an extortionate £5000. The second mortgage for our new home was a much more reasonable 2.70% tracker. We could afford the repayments quite comfortably but had credit card debt and a family loan to pay off. If interest rates went up by 1% then things would get tight, if they go up by 2 % we will be badly struggling, if they go  up by 3% we will have to abandon ship.

We convinced ourselves that even if we gave it a year and things got difficult then at least we could sell the buy to let and put some more money into our new home to reduce our monthly outgoings. For this though we needed house prices to at least remain stable or we would lose all of our equity in the rented property. There would also be a £5000 penalty to pay so it would be an expensive experiment.

In December 2009 I read that most people surveyed thought that house prices would continue to rise for a while yet and the media were saying that interest rates would stay at 0.5% at least until late 2010.

So we decided to risk it. It was the only way to secure our dream home and if house prices rose gently then it could end up being a good investment for the future.

The Dream House

We had been looking to move for a few years but couldn't find anything that was affordable but better than what we had already got. Our old house had 3 large bedrooms but the downstairs layout was not good, a small kitchen and an awkardly shaped lounge. Most houses that we had viewed had fallen down on bedroom size, usually the third bedroom was just too small.

Finally we found a house that had 3 reasonably sized bedrooms, a good kitchen and lounge and the bonus of a large garden for our children. The location was not fantastic which I suppose brought it within our budget but even then it had plenty of parking which was another plus point compared to our old house.

We didn't think that an opportunity like this would come along again so we were determined to get it, almost at any cost.

Background

In January 2010 I found the perfect house. The owner was about to rent it out but said we could buy it but only if we could complete within 6 weeks. The only way we could possibly do that was to rent out our own house and get a buy to let mortgage to buy the new house. We therefore became reluctant landlords at the mercy of the UK housing market.

Our finances were severely stretched. We had to borrow a few thousand pounds from my mum and we had to borrow another few thousand from our credit cards. We started life in our wonderful new home with £9000 worth of debt and two mortgages totalling £322,000 but owning 2 houses with a combined value of around £426,000.

With the rent from our old house and the low mortgage rate on the new house we could pay off our immediate debt within a few years and live comfortably as long as interest rates didn't go up too quick and the value of houses didn't fall dramatically.