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Last Updated: Monday, 4 April, 2005, 10:09 GMT 11:09 UK
Head to head: To buy or not to buy?
Saxon Brettell(left) and Barbara Goldsmith
Saxon Brettell is an economist and Barbara Goldsmith is a search agent

Nearly three quarters of people believe buying a home today means getting crippled with debt, a Mori poll has suggested. But others say evidence of prices starting to dip is creating "a buyer's market." So should first-time buyers give up their ambitions of property ownership?

Two property professionals have provided their contrasting views.

Barbara Goldsmith, an estate agent, remains optimistic. Read her views:

Saxon Brettell, a property economist, warns the housing market is weakening. Read his views:

Barbara Goldsmith, property search agent

It is a great time to buy as interest rates are still low and unlikely to rise by very much in the near future.

If you are worried about rates rising, then fix your mortgage for the next two to three years and you will know what your repayments will be. Unemployment is low and the economy is quite stable.

There are always cycles in the housing market - sometimes it goes up, sometimes it goes down - but as long as you are in for the medium to long-term and you have bought in a good location, your property will increase in value.

Tips and pitfalls:

Don't be too picky: I meet lots of first-time buyers who turn their noses up at a particular area just because it is a bit shabby. As long as an area is not violent and there are not crack houses on every corner, then you should not turn it down if it is a little bit run-down.

I bought my first house in Stratford E15 (east London), just five years ago for 68,000. My friends were horrified that I was moving to such a "dodgy" area. Eight months later, I sold that property for 110,000 and was able to buy two houses - one for me to live in and another as an investment property, having made a profit of 67% in just eight months.

There are still plenty of areas all over the UK where first-time buyers can do this as long as you are not too fussy.

Regeneration Hotspots: The key here is to move into an area before it comes up. That is the way to make money in the property market. There are lots of regeneration areas all over the UK.

Barbara's regeneration hotspots
North Manchester
Burnley, Lancs.
Wolverhampton
Stoke-on-Trent
Northfleet, Kent
Stratford, London
Dagenham, Essex
Bolton
Nelson and Colne, Lancs.
Accrington, Lancs.
Coventry, West Mids
Inverness, Scotland
Kings Cross, London
However, you must research your area very carefully before you move in. Within these hotspots are more promising areas and these are the ones you should look to buy into. For example, there are parts of Liverpool that are growing and going up in value. However, there are parts that are under compulsory purchase orders and you may find that in these areas it will be impossible to get a mortgage.

Rent a room: By renting out a room in your house you can raise money towards your mortgage and outgoings. But remember to allow for void periods and make sure that you can afford your mortgage even if no-one rents from you for a while.

Buy with friends: This will allow you to afford a bigger property than if you buy alone. However, be careful - draw up a clear legal agreement and make sure you have a plan in place in case one of you wishes to move or even to sell the property.

Use parents as guarantors: You will get a much bigger mortgage this way than you ever could alone. However, you must make sure that you do not overstretch yourself. It is best to start with a smaller place and know that you can make the payments whatever happens than to take on too big a mortgage and then struggle making the payments. The last thing you would want would be for your parents to bail you out.

Saxon Brettell, property economist at Cambridge Econometrics

The market has run out of steam. It is not pausing for breath.

The housing market is weakening, a seeming end to the long boom of unsustainably rapid growth in prices and high sales of recent years.

This is especially the case in the south of England where values remain strongly out of line with earnings. No doubt, there will be increasingly heroic efforts to suggest otherwise.

But an asset that is so expensive to maintain, and that is as strongly funded by borrowing as housing, could not for ever resist the yawning gap between the supply of and demand for new players.

The market has run out of steam - it is not pausing for breath.

There may still be some surprises coming from this uniquely volatile regional cocktail that is UK housing demand, but the main effect in the short-term seems likely to be on volume of activity rather than price.

The driver for all this is indebtedness, and the slow but steady application of the real economic brake on households that comes from their holding high levels of debt in a low inflation economy.

In the absence of a trigger for a sharper correction in prices this will mean a long period of stagnation in housing activity. This is the best of the set of possible poor outcomes for the UK economy's post-housing boom.

Interest rates are not low

Prospective first-time buyers should beware of arguments that interest rates are currently low. In real terms, and in general, they are not.

Lenders are of course currently chasing first-time buyers with special offers because they are a rare and relatively risk-free catch for them. But buyers will face the full cost in the next year or so as lenders recoup these initial discounts.

You may indeed face charges that seem much less per month as a share of your current income than say, renting, and much lower perhaps than your parent's generation when they bought their first house.

Almost certainly your real income is higher than theirs was at the same point in their lives. But in real terms, and these are the only ones that should matter to you, interest rates are now close to their long term average. Also, the debt you take on board now will not go away as it did for your parents through inflation.

Indeed, the Bank of England is poised to raise interest rates further if there is any hint of faster inflation coming through in the next few months, so the only benefit for you is that you face the certainty of stable real interest rates.

It's a life and debt issue
For a prospective first-time buyer the issue of affordability is real. This is the most important purchase of your life up to now and getting it wrong could unsettle your financial balance for years. Early purchase may currently be the least efficient route into home ownership for you.

But if you feel you have to buy, then the right choice is crucial. Think about what you may need, and how all this fits in with what is likely to happen to you (and your partner if you have one) over the next few years - and if you are forced to sell.

In particular, what are your job prospects? Is your work specialised by location and are your earnings on a fast growth projectile?

How do you or your partner feel about expensive long-distance commuting if you want cheaper housing but cannot move workplace?

What are likely to be your pertinent lifestyle choices and how might they change? Do you or your partner want to be close to the urban buzz and have high quality retail therapy, or do you prefer leafy glades and a more traditional style of family life?

Don't rush.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.


Real Story: First Time Buyers - BBC ONE, Monday 4 April, 2005 at 1930 BST.


SEE ALSO:
A leg up the property ladder
25 Mar 05 |  Real Story
Moving tales
04 Apr 05 |  Real Story
Brown unveils home ownership plan
01 Apr 05 |  UK Election 2005
Head to head: UK house prices
03 Dec 04 |  Business
Q&A: Dealing with estate agents
29 May 03 |  Business


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