Now's the time to buy property!

Harvey Jones thinks now is the right time to get on the property ladder. But what do you think?

Who would be a first-time buyer right now? Given the uncertainty over house prices, I wouldn't. But my friends Rachael and Chris are in that fretful position, hunting for a flat in south London, and they are going through agonies.

Is the house price crash over? Will prices fall further? Will interest rates shoot up? Can we get a mortgage at all? What if we lose our jobs? Are we doing the right thing?

Plenty of people must be in a similar position.

So they bought me a beer and said: "Harv, you're a financial journalist, please tell us what we should do."

And I said: "Ed Bowsher says the house price bust is not over, so there's no rush."

"But what do you think?"

I was wriggling, their financial future in my hands, then had a brainwave: "Let's ask the lovemoney.com community. That way we can get a spread of opinions about what you should do. And boy, they do have opinions."

So please, help me out here by stating your views in the comment box below.

Talking tosh

Like many Britons, Rachael and Chris are obsessing about what will happen to house prices next.

This is what I told them:

"UK houses are hideously overpriced and should have fallen by 30% or 40%, but they haven't. In fact, they have even been picking up lately.

"A couple of weeks ago I even claimed that the house price crash is over, although most people on the lovemoney.com message board thought I was talking tosh.

"Even if I was, the market has still displayed a surprising resilience, particularly in London. If you buy now, your home is likely to be worth more than you paid within five years, and possibly even two or three.

"So if you see the right place at a price you can afford, snap it up while you can."

Rachael and Chris said they would think about it, and in the meantime, it was my round.

The happy couple

Before I solicit your advice, you need a few facts about my friends.

They are a recently and happily married couple in their (very) early thirties. She is a drugs company PR, he is a trained chef who works in food retail. He lost his job three months ago, but after six anxious weeks, found a new one.

Their combined earnings total £60,500 a year. They currently pay £700 a month to rent a tiny one-bedroom flat in a dodgy part of south London. They have been looking at ex-local authority two and three-bedroom flats in Camberwell costing between £170,000 and £200,000.

Buying ex-LA should secure them a larger flat, but the blocks they have seen so far have been "pretty ropey".

Rachael isn't happy. "You need to spend £200,000 to buy anything in London that isn't a shoebox or vile. So even with two decent incomes, we are still miles away from owning anything. Really, it's quite upsetting!"

They have a £20,000 deposit, courtesy of the bank of Mom and Dad, but were shocked to discover they need 25% to get the best mortgage rates. "That's practically impossible in London! How are we supposed to have £50,000 knocking around?" Rachael said.

She has outstanding debts of £6,500, commendably hacked down from £17,000 three years ago.

Britannia rules!

I wasn't sure Rachael and Chris could even get a decent mortgage with a 10% deposit, so I checked with Tim Wilson, mortgage sales manager at Fool Financial Services.

He told me Britannia building society offers a five-year fixed rate at 5.69% up to 90%, with a £599 arrangement fee. It will lend up to 3.75 times joint income, so they can afford to buy up to £200,000 (or £226,875, if they could squeeze more deposit out of M+D Ltd).

That is a great deal, he says. The next best 90% LTV deal is a pricey 6.99% five-year fix from Halifax.

If inflation picks up in the next five years, as many suspect, that Britannia rate could look even better (provided that it will lend on an ex-LA flat, some lenders can be picky).

Renting is still cheaper

Buying would still cost them more than renting. The monthly repayments on a £150,000 mortgage (to buy a £170,000 property) would cost £940 a month with Britannia, while borrowing £180,000 (to buy a £200,000 property) would cost £1,125 a month. These figures assume a 25-year capital repayment mortgage.

So they will pay an £240 or £425 a month more than they would if they were renting, but in return get an extra bedroom or two, and may one day be the proud owners of an ex-LA flat.

Go for it!

If they could magic up a bigger deposit of 25%, Abbey would offer them a five-year fix rate at just 4.89%.

But it would take Rachael and Chris several years to save that, by which time both mortgage rates and house prices could be much higher.

Then again, maybe in a month or two, they could have a better choice of rates at 90% LTV.

My verdict

As you can see, this is a tricky decision. The good news is that there is a mortgage for them (subject to status etc).

If Rachael and Chris find a halfway decent place and can afford the repayments, I would urge them to buy.

You may have a different view. Tell me what it is!

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