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House Buying Guide

The Psychology

There is only one reason why people do not buy a property - fear.
There is only one reason why people do buy property - control.

So if you want to get on the property ladder you need to eliminate your fears and want to take control.

People's Fears

There are a number of fears that people have which are fully justified. They are not dissimilar to what business people face when appraising a potential investment. These are called risks. The difference between the ordinary person and a business person is that a business person:

a. Identifies all the risks involved

b. Mitigates each risk as best he or she can

c. Considers the overall risk based on how well he or she can mitigate each individual risk

d. Makes a decision based on the overall risk

So to get on the property ladder you need to:

a. Identify all your fears involved in buying a property

b. Think how you can overcome each fear involved in buying a property

c. Consider the overall fear factor based on how well you can overcome each individual fear

d. Decide whether you want to buy a property or not based on the overall fear factor

The Fears and How To Overcome Them

With every fear you can take what I call countermeasures which overcome each fear. A countermeasure is an action you take to counteract each fear. No countermeasure is fool-proof otherwise the fear would not be a fear purely by its definition as it could be fully overcome.

There will still always be an overhang of fear but it will be a lot less than the starting fear. This is what I call residual fear. The residual fear is therefore still present even after the countermeasure and thus is a real fear. You can take further countermeasures to reduce this residual fear but it depends on how far you want to go.

There will always be residual fear however. An example of residual fear that cannot be eliminated is the destruction of your house if there was a war. No insurance company will take on this risk. The only way you could mitigate this risk would be to build a bomb-proof shell around your house - but this would be impractical and probably cost more than your house itself!

The fears, countermeasures and residual fears in buying a property are:

	Fear	Countermeasure	Residual fear	Further countermeasures
1	Losing your job and can't pay the mortgage.	Buy a property that can be easily let out and the rent covers the mortgage payment comfortably.	The tenant does not pay the rent.	Take out landlord insurance that covers you for loss of rent due to tenant default.
2	Interest rate rises beyond affordability.	Fix the interest rate for a fixed period of time.	The interest rate rises beyond affordability after the fixed period of time.	Fix the interest rate for the whole term of the mortgage.
3	Get caught in negative equity trap.	Don't sell the property and realise your loss. Rent it out. Wait for the recovery and then sell.	It never recovers and you have to sell.	Take out a smaller unsecured loan to cover the different between the selling price and mortgage balance.
4	Have to move out of the area due to a change of job.	Buy a property that can be easily let out and the rent covers the mortgage payment comfortably.	The tenant does not pay the rent.	Take out landlord insurance that covers you for loss of rent due to tenant default.
5	Major repair becomes due and can't afford to carry out works.	Take out a thorough and comprehensive buildings and contents insurance.	The policy doesn't capture every eventuality,	Take out specific policies for specific items, i.e. British Gas offer full insurance on your boiler from £8 per month.
6	Buying a property you can't sell.	Avoid difficult to sell properties such as studio flats, ex local authority flats, flats above shops, non-standard construction properties or any property that is difficult to get a mortgage on.	Still can't sell it!	Buy a property near a city train station or major road junction.
7	Financially linking yourself with a partner and becoming liable for their share.	Create a document that transfers full ownership to you if your partner defaults.	Still can't afford to pay their share.	Buy a saleable property (i.e. an easily mortgageable one) and sell it! Or rent it out.
8	Can't pay the mortgage as it falls due, due to the irregularity of your income.	Get a flexible mortgage where you can overpay on the mortgage and take payment holidays.	Still can't afford to pay the mortgage.	Get an overdraft facility or pay the mortgage with your credit card cheque book and pay back when able to do so.