my friend has bought a house

My friend has just completed on her new house, and I haven't got mine yet. Boo.

I was in her house on the weekend and we were discussing some of the changes that she want to make to it and I was being asked all sorts of questions like, do I think it will look better with carpets or laminate flooring? how much do new windows cost? how could someone have chosen such a hideous bathroom suite?

Of course, not being a homeowner myself yet (yes I am bitter btw) I don't know the answers to these questions. But I do know that making changes to a house cost a lot of money. And I know that some changes pay off in terms of adding value to the place. What I'm more interested in is a sort of cost benefit analysis of the value to me. Kind of like, how much use will I get out of an addition.

For me, colour and design are quite important, so the amount of time and effort spent on painting a place are probably worth it - even if it is already decorated in perfectly acceptable neutral colours. I like to cook, but I live on my own, so altering a functional kitchen probably isn't good value to me.

This kind of thinking extends to furniture. I have a sofa bed from Ikea that has no arms (deliberately, I might add) its also kind of uncomfortable. Since having it, I have discovered that the only way to sit on it and be happy, is to lie down. Ideally, it would then have arms for me to lean my head on. I've seen the sofa of my dreams in Habitat, but it costs several hundred pounds. How do I determine the cost benefit of this sort of thing? It certainly won't increase the value of my house, but it could increase my happiness.

a house is worth what someone will pay for it

I was watching Selling Houses Abroad last night whilst waiting for the Life on Mars finale (immense series by the way). The main focus of the show was a couple who had bought a 3 bed village house in south west France several years ago. After having their second child they decided that they wanted to upgrade and take on a renovation project so they put their house on the market and took out a bridging loan to buy a run down cottage and outbuildings in the surrounding countryside. Two years later they still haven’t sold their village house.

Part of this programme is usually a house doctor type section where the presenter comes in and tells them how poorly their house is presented. In this case the criticisms were well justified because the 18th century house had all of its rustic charm covered up in not very good quality modern materials. They agreed to spend £2000 to do up the place a bit. This was basically spent on repainting, putting in more kitchen units and changing the bathroom. The couple selling the house seemed perfectly reasonable during this part of the show and it is easy to live with “features” that are hard to sell.

The other reason that their house hadn’t sold was the price. It was being marketed at about €220,000. In nearby villages, there were larger houses in excellent decorative condition with sought after period features on the market at between €165,000 and €175,000. I appreciate that it can sometimes be difficult to gain comparables as the houses in this region are very individual, but still, not much research was required to find this out in the space of two years. In any case, the house was being marketed by 11 estate agents and each of them valued the property at between €165,000 and €175,000 despite listing it at €220,000.

When it was suggested that they drop the price, the couple were not happy. They had a reason for justifying their asking price. Another house a few doors away was also being marketed at a similar price. Funnily enough, it also hadn’t sold. It was rightly pointed out to them that if they actually wanted to sell, perhaps they should compare their house to other houses that had sold, not other houses that hadn’t.

In the end they agreed to drop the price. They worked out how much they needed to get for the house, and decided to list it at that price. Which was about €200,000. And herein lies the problem. Just because they need a certain sum of money doesn’t mean that anyone will pay that amount for the house. They need to forget what they originally hoped to get for the property and either take what someone will pay them for it, or sell their renovation project or they face losing both homes through bankruptcy.

housing market crash?

Again last week I watched an episode of Tonight which had a monetary slant. In this case it was about whether the housing market would crash or not. The gist of the programme was that there was a panel of three people, property search agent Phil Spencer, journalist Jonathan Maitland and columnist and landlord Rosie Millard. Then some experts presented a segment on whether they thought the housing market was on the brink of crashing or not. The conclusion was that Millard and Spencer (who both have something to lose if there is a crash) thought that there wouldn’t be a crash and Maitland thought that there would. Spencer was more confident that Millard.

It wasn’t the greatest show ever, but it wasn’t too bad. I cooked and ate my dinner whilst watching it so I didn’t exactly give it my full attention. It got me thinking though about the main factor that I thought they didn’t mention. General inflation.

You see when you’re borrowing a fixed amount of money, inflation is your friend. Every year that goes sees the relative cost of a mortgage payment dropping with the miracle of compound interest.

If I don’t move house and wait long enough, my house will be a rent-free place to live. What more could anyone want. In any case, eventually any house is likely to be worth more than it is today. That’s inflation for you.

money scripts: house buying

In common with a lot of people, I’ve grown up with some scripts relating to money. By this I mean things that I have absorbed in childhood that I have never questioned. One of those things cropped up during my current house purchase.

Somewhere in my life I have learnt that ‘you should always have a full survey carried out on a house’.

For background information, there are basically three types of survey:

1. Mortgage Valuation Report – how much is the house worth?
2. Homebuyers Report – what are the major problems with the house?
3. Building Survey – what are major and minor problems with the house?

Obviously, as the surveys become more detailed, they become more expensive. With my combination of house price and mortgage company, the choices I had were £250 for a valuation, £500 for a homebuyers report and £950 for a building survey.

The house that I’m buying is a small late 19th / early 20th century terraced house. The sort that’s fairly common in my area and right across the Midlands and north of England. Most people are advised to have a ‘homebuyer’s report’ as a kind of third way, particularly if they’re not planning on doing any alterations. This is how I was advised. By the mortgage broker, two people from the surveyor’s firm, the estate agent and by almost everyone I know.

Some people actually took it as a personal insult that I would actually consider having a full building survey done. I was told that “after buying a few houses, you soon recognise the major problems”. This is my first house purchase ever.

Really, I think they’re right. It would be financially more sensible to go for the cheaper option as there is unlikely to be anything wrong with the property that the homebuyer’s report wouldn’t pick up. But it’s not just about the money.

In the end, I decided that the script was pretty ingrained. I know absolutely nothing about houses, and wouldn’t recognise a problem if I saw one anyway. I’m buying on my own and need as much reassurance as I can get. Spending a few hundred pounds on researching a purchase worth tens of thousands of pounds is fine by me. I’ve had the survey done and it’s given me a list of little maintenance jobs that need doing. None of them are particularly urgent. The biggest thing is some damp in the downstairs bathroom extension, which makes sense. The house is in average condition for its age and its not falling down.

Sometimes, you really can buy peace of mind.

in response to renting or buying @ the simple dollar

Trent at the simple dollar posted on comparing renting to buying a house. He suggested that when looking at similar standard properties,

1. if rent exceeds the mortgage payment then a mortgage is (financially) better
2. if rent exceeds the interest portion of a mortgage then its a grey area
3. if rent is less than the interest portion of a mortgage then renting is better

In any case he suggests that if renting is a cheaper option, you should save or invest the difference towards a deposit. Trent does assume that your rent will only be less than the interest portion of the mortgage payment if you haven't enough saved for a deposit which, I think, depends on how you define enough.

Anyway, I've compared my planned mortgage payment and rent to see how it stacks up.

Rent = £375

Mortgage = £493

Interest on Mortgage Initially = £400

It looks like I shouldn't be buying at all, but continuing to rent. However, Trent actually states that you should consider the interest payment after 5 years as a fairer representation of the grey area. For my mortgage I have

Interest on Mortgage after 5 years = £370

Wow, thats a pretty close thing. I'm in the grey area by the skin of my teeth. Trent suggests that I consider the utilities, tax and maintenance issues to determine whether I should rent or buy. In my case, I can pretty much assume that the utilities and tax will be the same but maintenance and insurance costs will be higher.

I think this means that strictly financially speaking I'd be slightly better off renting and saving more money towards a deposit. Which goes to show that buying a house isn't just a rational, financial decision for me. I already knew that it was a marginal decision but I want a place of my own and I'm prepared to pay for it.

buying a house - part 1

I am at the moment in the process of buying a house and its going really well at the moment

I took two days off work to go house hunting and trekked round the various estate agents in my locality. After a viewing a few places, I found my house. By this I mean that when I walked into the place, it felt like it was mine. I put in an offer on Friday 2nd February which was accepted on the same day.

What I had meant to do, was make sure solicitors, mortgage and deposit were perfectly in place before I made the offer.

What I actually did was to have the mortgage applied for but not confirmed, no solicitor and only about 80% of the deposit available. So I ran round like a headless chicken getting a solicitor through http://www.easier2move.co.uk, transferring money from savings accounts and hoping that there wouldn't be any problems with the mortgage.

So how did this great idea pan out?

Well the estate agent wouldn't take the house off the market until they had the solicitors details. Which didn't arrive till the following Tuesday. The mortgage Approval In Principle although given, never arrived - I just told the estate agent and the solicitor the details (which subsequently changed anyway). The deposit and fees money is still in the process of being put together, although there has been a bit of a saga with one of my online savings accounts.

So far, so good.