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Risks when buying a home

The risk of repossession

  • If you can't keep up with your mortgage payments, your mortgage lender may repossess your home to get their money back

    • If there is money left over once they sell your home, take what they are owed and pay all fees, they will return this to you, but it is likely to be a lot less than what you would have got if you had sold the house​, as selling a house in a hurry tends to mean it sells for a lower price

    • Most people instead choose to proactively sell their house once they realise they will struggle with mortgage repayments & downsize or rent

    • Make sure to consider how high mortgage rates could get & work out if you could afford those rates when choosing how big a house to buy

Struggling to sell your home in the future​

  • Selling your new home in the future should not be a problem if the value of your home remains the same or increases

  • People run into difficulties if the value of their home decreases and they still have a mortgage to pay off

    • If selling their home at its new lower value would not pay off their remaining mortgage (known as negative equity), people can get stuck, unable to sell & move as they can't pay off their mortgage

    • If the whole house market crashed, more expensive homes will likely lose more value in cash than less expensive homes

  • You should consider:

    • Is there a chance you could be overpaying for your home?​

    • Are there any risk factors that could reduce the value of your home in the future?

    • Do you need to move home again within the next few years & can't afford to get stuck?

  • Some examples of things you should think about are:​

    • Flood risk - after a home is flooded it can be very difficult to sell on​

    • Risk or signs of damp - particularly rising damp can be costly to fix & could decrease the value of your home if it gets worse

    • New builds - new, perfect condition homes can sometimes command a price premium that might not be replicated a few years down the line when they're no longer completely new & in perfect condition

    • Government schemes to help first time buyers - as counterintuitive as it sounds, some schemes that concentrate buyers only on certain homes can artificially increase the demand for these homes, driving up prices, which may reduce if the scheme ends or doesn't apply to the people you want to sell to in the future. "Help to buy", a scheme which ends in 2022/2023, is a case in point (see article). The shared ownership scheme can present some difficulties selling (see article) on as well

    • Steep house price rises - if you buy at a peak of house prices and then they drop, you can get stuck in a home until either house prices rise again, or you pay off enough of your mortgage to be able to pay back your mortgage lender in full when you sell your home

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