In the general economic climate in 2010, for many first time house buyers, this period represents an excellent opportunity to buy a house (new or existing) at a very attractive price in some of the most livable places in their country: though deposits are higher, asking prices are way off their highs, they have multiple choices of properties, initial mortgage rates are very low compared to historical rates, making properties really affordable, if you are a first time buyer.

What’s the risk?

But interest rates are now beginning to creep up slowly in various parts of the world. Central banks are fighting a very difficult balancing act right now: between deflationary recession and inflationary demand, because the usual tools to fight inflation have been relaxed so much. The risk is: if the double-dip is avoided, that rates will rise dramatically from current levels back to historical averages at least to stem the inflationary commodity price spikes.

Get Ready for Higher Rates

For first time buyers, this will mean: increased payments in their mortgage payments. I am enjoying the benefits of the extra 10-20% reduction in my own payments, but am quite sanguine that early next year we’ll see some upward increments in the rates. First time buyers will need to prepare themselves for the return to higher mortgage rates at some point in the next 12 months. What can a first time buyer do?

Fixed Rate Mortgage

Consider locking in rates with a fixed-rate mortgage loan. Why? Simply because the fixed rate mortage will keep payments at the same level for the life of the mortgage. With both mortgage rates and inflation likely to rise in the longer term, the payments will become relatively cheaper over time.

The additional benefit is that, if you know you are going to live in the same house for a long time, you will probably see a rise in nominal house value and cheaper relative mortage payments (because inflation will mean higher pay rises and costs).

And rates right now, albeit higher than Adjustable Rate Mortgages, are quite attractive. One site is featuring rates from 4.75% for 30 years and 4.25% for 15 year fixed rate mortgages (of course, a number of assumptions are made including your credit scores, profession, locality, etc.) so you may find rates more expensive than these numbers.

Increase Your Down Payment

First, figure out how much of the downpayment they can afford to make for their house purchase. The more the better your initial rate will be, and the less you will have to pay in additional rates when rises do come. I wouldn’t recommend any 100% mortages EVER, because of the increased risk that you might face. Try to pay out an initial 10% or even 20% of your house price on purchase, and don’t be tempted to fold additional niceties into the loan amount.

If you have been saving for a few years during the heat of the boom years, you will by now have saved a reasonably large amount. If you haven’t, don’t worry. There is still plenty of time to save money as these lowered prices are going to be with us for some time, at least until the recovery is well underway (in 2011?). So get started saving.

Make Regular Additional Payments

Making regular additional payments against your principal will, depending on your type of agreement and the TOS, mean that your interest payments will go down longer term. It also means that the term to repayment will shorten, and should help save a bundle of cash over the longer term. It’s like being given a surprise payment as the returns on each lump sum payment are pretty attractive. And certainly much more attractive than sticking the money in the bank at 1% pa.

Buy Desirable Property

Overall, I’d be looking to be desirable property, if I were living in the US and househunting. Why? Because it’s all too easy in a down market to only look at the sticker price, but to protect your house value, you will need a keen eye to see the potential purchase in terms of its market position today, and tomorrow. So don’t go looking in the bargain basement section of the real estate market. Those items are usually priced like that FOR A REASON.

Avoid Home Equity Loans

Once you buy your property, avoid taking out additional home equity loans on the house, especially if your initial downpayment was low. It will add to your overall payments each month and rates are much higher than regular mortgages. If you must renovate some or all of your house, try to do it from sources of funds (savings) that don’t put your own equity in the house at risk.

Disclaimer: InvestorBlogger is a homeowner, but doesn’t claim any professional knowledge as such of property markets or lending. Do your own research before you make any decisions.This post is sponsored.

The politicians are at it again, in the UK. Raising taxes to pay for their own past mistakes. Unlike the US democrats, the British government can’t blame the other party at all for what’s happened, since they’ve been in power since 1997. I’m no economist by training, and I’m not living in the UK at the moment, so perhaps I’m ill-informed. Perhaps.

Today, Alistair Darling has proved to be nobody’s darling: He hiked the top rates of tax for those earning over £100,000 which according to one story combined with other plans of his are estimated to bring in an extra £6bn by 2012 rising to £17bn by 2014. He’s also trimmed benefits, taken away tax breaks, and much more…

Given that his assumptions are optimistic, to say the least, raising taxes on any segment of the population at this time is likely to vary from mildly regressive on most people to seriously foolish. I tend to the latter end of the spectrum. Why? Because those who are the entrepreneurs in the UK are the ones most likely to provide work for those who earn much less, and they need the capital to provide investment capital for future businesses.

Startups Need Capital

Startup capital comes from someone’s pocket, after all. If tax rates rise, entrepreneurs will conclude that the tax burden places an increased need for higher returns. This means that they will either find markets with better returns than ours, move their domicile off-shore, or simply exit the British markets. Or they will charge more for their products and services. Is it any wonder that British consumers typically pay over the odds for products and services? Hint: it could be linked to the amount of taxes they are paying, directly (VAT, etc.) and indirectly (corporate taxes).

Back to you and me

In the end, the only people who suffer are the ones who purchase the services and products, ie. you and me. Why? Because we’re the least informed on how to create tax efficient vehicles, how to get tax credits for investments, how to offset tax increases, and where to shelter money from grasping governments.

It’s all in the numbers

“His calculations, however, depend upon a forecast growth rate of 1.25% next year, rising to a figure of 3.5% in 2011.” (source) Does anybody seriously believe we’ll have growth in 2011 of 3.5%? Really, are you kidding? Mortgages are underwater, unemployment is jumping, people still can’t get credit, and others have their credit lines closed by banks too nervous to hold their customers hands any more. With customers needing more cash, where is all this consumer spending going to come from?

But what surprises me?

The tax rates are going to penalize those people whose talents are needed in investing, finance, law, politics, business, government, science, social services, health care, and so on, the ones we need to build, sustain and nurture our country. Doesn’t anyone remember the last grandiose experiment in raising taxes in the 1970’s when top tax rates virtually killed British industry, stifled entrepreneurs, and led (indirectly) to thousands of layoffs in all industries? Oh, well.

It’s in the figures

But I took a look at the graphs, and I don’t get it. It tells me that the government has borrowed £175bn, yet it makes no account of where this borrowing went, how it was divided up, or why it accounts for fully 26% of government incomes. Of course, it beggars belief that borrowed money could possibly count as ‘income’ in the first place. But worse, the interest on that money now eats up £28bn of expenditure. This makes it the seventh largest expenditure in the budget. And I would guess this amount will continue to grow even more. ( A crude calculation shows that this is at an APR of 16% … wow! Perhaps the government should find more economical ways to borrow money!) I do know that if I ran my business with interest amounts so large, and rates like these, I’d be moving as fast as possible to cut my debts, not borrow more.

Whither inflation?

Unfortunately, I’m not convinced: I think this set of figures bodes badly for inflation. The government will be tempted to inflate its way out of such large debts by allowing inflation to be higher when recovery comes. And it’s likely to include a period where we revisit oil prices in the $80’s and $90’s as soon as recovery begins. Inflation is around the corner, and gold prices are a hint of what is to come. But then again, I’m not an economist.

So buy your salt now if you believe prices are going to rise, or buy it later when it’s cheaper. Either way, these days you’re going to need a lot of it when you read the governments’ assessments of what is going on, and what is going to happen.