House purchase inflation hedge?

[Jervid]

I have a hard earned 400k deposit to put down on a new house. However, not only are prices very high at the moment, demand is also fever pitch and I have missed out on several houses in unofficial bidding wars with other buyers, with houses going for 50k over asking price.

I am highly tempted to wait until the market calms down (and prices correct downwards) but I have a sense of urgency as my 400k deposit is being eroded daily by 10% inflation - in theory 10k in the 3 months since I have been house hunting in earnest.

Should I buy any property right now (notwithstanding the overinflated house prices) in order to stop my deposit being eroded? Or are there any other 'safe havens' investments to protect my deposit until a time when the market calms down?

[Steveam]

It may well depend on where in the U.K. you’re talking about. There is a distinct softening in price/demand in many parts of London.

Best wishes,

Steve

[DrFfybes]

I am highly tempted to wait until the market calms down (and prices correct downwards) but I have a sense of urgency as my 400k deposit is being eroded daily by 10% inflation - in theory 10k in the 3 months since I have been house hunting in earnest.

I think the market is also calming, a neighbour has had interest on theirs on sale for 2 months, but their buyer cannot sell and the one they want to buy have had no interest apart from them.

Re deposit erosion - it isn't eroding at inflation and it probably hasn't lost anything. OK, yes, in real terms, your cash will buy less of the General things inlfation is calculated with.

But this money is a house deposit, the value should only be measured against the asset class it is rengfenced for. If house prices are flat, your £400k is still worth the same, and if they fall, it will effectively grow. Just make sure your mortgage offer is ready and the ducks are aligned for when you do find what you want.

And you really really don't want to blow 10% in fees (agents, solicitors, stamp duty) of it buying and selling something you don't want just so you can partake in what you are suspecting will be a house price crash.

Paul

[Dod101]

I am highly tempted to wait until the market calms down (and prices correct downwards) but I have a sense of urgency as my 400k deposit is being eroded daily by 10% inflation - in theory 10k in the 3 months since I have been house hunting in earnest.

I think the market is also calming, a neighbour has had interest on theirs on sale for 2 months, but their buyer cannot sell and the one they want to buy have had no interest apart from them.

Re deposit erosion - it isn't eroding at inflation and it probably hasn't lost anything. OK, yes, in real terms, your cash will buy less of the General things inlfation is calculated with.

But this money is a house deposit, the value should only be measured against the asset class it is rengfenced for. If house prices are flat, your £400k is still worth the same, and if they fall, it will effectively grow. Just make sure your mortgage offer is ready and the ducks are aligned for when you do find what you want.

And you really really don't want to blow 10% in fees (agents, solicitors, stamp duty) of it buying and selling something you don't want just so you can partake in what you are suspecting will be a house price crash.

Paul

Yes that is what I thought. You could lose any 'gain' on the transaction costs, so I think a rather more considered approach might be sensible. If house prices are not rising at 10% per annum then the loss via inflation is less than 10% for you.

Dod

[Jervid]

Many thanks for your all of your replies, most interesting.

I am looking to buy in Brighton (where I am from, but looking all over Sussex) and unfortunately I am not finding any slowing down. This morning I missed out on the 6th house that I have offered on in the last two months, despite offering 30k over asking. The agents never reveal the final sale price, but I understand that 5-7% over is the norm and has been for some time.

I am aware that all the fees will amount to quite a bit, so I guess it wouldnt be buying just any house, just a house in a less desired area.

If house prices fall then hanging on will have made sense and my 400k deposit will hopefully buy me somewhere decent. If they just level off tho, it will seem that my 400k has depreciated, especially against other goods.

I figure with interest rates rising house prices will eventually correct, so should I invest the cash somewhere for a year? What would be a good investment hedge against inflation?

[GrahamPlatt]

viewtopic.php?f=52&t=34581&start=20#p517577

[staffordian]

I figure with interest rates rising house prices will eventually correct, so should I invest the cash somewhere for a year? What would be a good investment hedge against inflation?

I know of no investment which can reliably even keep close to inflation given your need to cash it in with relatively short notice and over a time scale as short as a year.

Anything which claims to offer this should not be touched with even the longest barge pole.

I see the options as just the two you have already considered; either buy a reasonable place asap or wait it out and see, depositing the money in the best savings account you can find (and split over several given the maximum FSCS limit of £85k per person (double if a joint account).

[Jervid]

Thanks all for taking your time to offer advice. I'm going to monitor the situation and hope the market slows soon

[Loup321]

My ex reckoned house prices would "correct" when we were about to buy our first flat together. That was in 2008, and I think they have risen steadily ever since relative to earnings. I'm still not sure why average house prices "should" be 3 times average earnings, or whatever the "correction" implies to you. Just because they have been at that level in the past, doesn't mean there is any reason that they should be. Mortgage lenders adapt their offers to the market, or get no business.

I think far more important are the mortgage interest rates. People want to buy right now, so they can get a mortgage deal based on today's interest rates. I think that interest rates will rise, and mortgage rates will go up over the next 2-3 years (get your own crystal balls...), so locking in a low rate now makes sense. THAT's what's making house sales increase and prices a bit higher.

I would feel a sense of urgency because I think rates will go up, but keeping a cool head and ignoring the sense of urgency usually leads to fewer regrets. I'm glad I'm not trying to buy somewhere right now!

[DrFfybes]

I would feel a sense of urgency because I think rates will go up, but keeping a cool head and ignoring the sense of urgency usually leads to fewer regrets. I'm glad I'm not trying to buy somewhere right now!

This is the thing - I've moved around a fair bit, bought and sold half a dozen properties, and each time I find it a horrid process. Each time I sit there thinking 'Will I ever find what I want in budget, will anyone ever want the house I'm selling?'

It is incredibly easy to make a mistake, to leap at something unprepared, to buy with the heart and ignore the head, but "buy in haste, repent at leisure". We moved a couple of years ago, just before the latest round of madness, before getting this place we' offered on 3 others and not got them, at the time it was very disappointing, but you know what? I'm sooooo glad we didn't get them. They were all a compromise, a bit cheaper, not as good a location, further from town which we now realise would have been a mistake.

Sure the current place needs work, it's 240 years old and was renivated by a fireman in the 1980s, and the small jobs turn out larger, but I am so glad we waited.

Paul

[Jervid]

Yes I agree with you Loup321, house prices rarely correct themselves down to a large degree. The problem is that buying one at the moment turns into a bidding war, with potential buyers upping the ante by 5k (or more) each time until the other participants cant stay in the game. A house might be on the market at 500k, but ends up going for 550k. The annoying 'sealed bid' or 'best and final' compounds the pain, because you dont even know what other people are offering. Altho I have found out that someone can soon find out what is necessary to win a property when I was gazumped recently. In this environment the gloves are well and truly off by all parties.

I think you are right, the continual low interest rates are in part driving this craziness. Also people in a similar situation to my own are seeing their deposit being eroded at a terrifying pace by inflation so that is giving them a large incentive to buy sooner rather than later. Couple all that with people wanting to work from home and 'the race for space' means that there are too few people fighting for too few spaces outside of large cities. This creates a fear of missing out and a sense of panic amongst buyers.

I am starting to see prices falling on the less desirable properties - the ones that need a bit of work. Maybe this will even things out, encourage people to consider other choices and mean that not everyone is bidding on the same house. Interest rates will rise to combat inflation and that will also deter buyers. But how long to wait? And every day a deposit that I have spent years accumulating is disappearing through inflation...