X marks the spot

BullionVault

05 August, 2016

House buying (21/30)

I mentioned that I would cover house buying and so here it is.

I nearly bought a house in 1990. I didn't. Zero critical thought allowed my mother and grand mother to easily dissuade me.  So, their advice has cost me dearly. £15,000 would have bought me a house valued at £100,000 plus today.

So, that is a really good reason for bothering with critical thought. I do live in a £100,000 plus home at a cost of £600 a month in rent. Critical Thought applied in 1990 would be saving me £600 a month. Every month.

Should buying a home really depend on what the first two people you mention it to think?

Can you blame them if their advice turns out to be bewilderingly bad?

Well yes, you can. Or you can blame yourself for not critically thinking about it.

Well that was then and this is now. Critical Thought means thinking critically. Thinking is hard. Reacting is easy. If I say buy or perhaps don't buy you will have an instant reaction. That is not critically thinking.

I know of a couple who worked hard all their lives running a bakery. They saved hard and dreamed one day of retiring to a brand new house full of brand new furniture. They have my best wishes. Unfortunately, the first house wasn't as they had hoped. Neither was the third. Lack of funds prevented further attempts.

Would it have benefited them consulting me for forty minutes? I have no idea but I would like to think that it would. Otherwise, why write these blogs?

Back to you. Today, a mortgage is for 25 years or so. What are your job prospects like for the next quarter century? Now that should be a topic on its own.

How about the general economy? Is that looking solid? Again, another topic for critical thought.

How about interest rates? Back in 1990 they were just under 10% with homes about 2.5 times income. Now they are about 2.5% with homes 6 times income. What are your thoughts for the coming decades?

Are you aware that house prices and interest rates are indirectly linked? High interest rates are linked with low house prices. See 1990. Low interest rates lead to high house prices.

So should you buy or rent? Tricky question. It does need a large amount of critical thinking. Yours not mine.

I didn't mention deposits. 25% gets you a low interest rate. As does getting your parents to act as guarantors. Neither of these methods is without risk.

Critically think about worse case scenarios and how you will cope with them.

As always, I wish you the very best of luck.