First Time Buyers: Rent for a While Yet

I have just been reading a thread on the forum House Price Crash, and the consensus of opinion is that those first-time buyers who have been renting because they couldn't afford to buy in their area, should continue to rent for a while yet, as the consensus is that prices will keep on falling.

A poster named Scott writes:

OK, I currently rent a property for £750 per month and similar properties in the area are advertised at £180,000 (notice I said advertised, not worth). So, I'm going to work out some figures based on this property for someone with zilch savings to their name.

If they purchase the property at £180k and pay a repayment mortgage at 6% over 25 years they would be paying £1,159 per month as opposed to £750 a month rent. Now if that house price drops 30% over the next 4 years they will be down £19,641 having overpaid for the mortgage for 48 months and this property is now worth £126,000. So in reality they have lost £73,641. If the house goes down by 40% they will have lost £91,641.

On interest only, it works out that they will be down £7,200 on overpaying a mortgage as opposed to rent meaning on 30% downturn in property prices they have made a total loss of £61,200 and on 40% drop £79,200.

Though there were some posts disagreeing everyone was forced to admit that house prices are unlikely to do anything but continue falling for the next few years. Scott ended the argument all together by posting:

"But even if prices stagnated for the next 4 years they still save £7,200. And that's without the worry of interest rates crippling you"

However, as I have written in previous articles, it is entirely possible that the number of people out there wanting and trying to buy property at the current prices but unable to get finance, to spur a recovery, so prices will keep falling until banks loosen their grip on mortgage lending.

I do however agree that house prices will continue to fall in the first three quarters of 2009, after that I am slightly optimistic.