surviving the recession

Estate agents are reporting that there has been increased interest in property recently - not surprising as a lot of pent-up demand built up in the last year, and many buyers feel that with the drop in property prices and interest rates, now is their chance.

Should you buy a property in the current conditions? Only if you can answer yes to the following questions:

1. Is your income secure? Of course no-one is immune to losing their job, but some professions are more secure than others. If you are in finance or manufacturing, then lay-offs may be on the cards. If you are self-employed or freelance, be warned that work may dry up and you may wish to sit things out till the economy improves.

2. Can I afford the mortgage. No sense mortgaging yourself up to the hilt. If you can’t comfortably afford a mortgage now, think of the difficulty you will have if interest rates rise.

3. Can you cope if bank base rates rose back to 5% (the rate they were just 4 months ago)? That involves an interest rate rise of 4% on your mortgage. If you won’t be able to cope, then wait until you can before plunging into buying a property. Don’t ignore this point - when interest rates start rising again, they will go up fast. Many people seem to think current conditions will last a decade - but that is unlikely.

4. If propery prices slump further, can you afford to wait things out for another five to seven years till the prices rise again? If you are moving to accomodate a growing family, chances are you will still be living in the property in seven years time, so go ahead - no sense making yourself uncomfortable in a smaller house just trying to time the market (which is impossible). If you are just investing or may have to move house because of job moves, then wait till the market improves.

If you’ve replied Yes to the above questions, then the next thing to do is see how much cash you need to raise. Lenders only want to lend a maximum of 85% of the property value as they are scared that further property falls will mean the loan is greater than the value of the home. Therefore, you will need a good £20,000 to £30,000 to put down as a deposit if you are buying a property of average value of £133,000 to £200,000. Then on top of that you will need to budget for stamp duty (1% of the property value for properties over £175,000), solicitors fees, surveyors costs, estate agents fees if you are also selling your current home, and possibly the arrangement fee on the mortgage as well. It all adds up to several thousand pounds.

Then be aware that the lender will take account of your existing debts, especially if they are fixed loans (though they may ignore these if they have less than 6 months to go), and your credit record (a single missed payment may damage you). Due to new information sharing rules, lenders now have access to details of all the debts you have, and if your credit card debts are high they may refuse you on those grounds.

Therefore buying a home in the current conditions is only worth doing if you are in a position to raise a deposit and clear your existing debts. If you are nowhere close, take heart. The current conditions will last at least another year, so you have time to tackle your problems if you start now.