BOE Base = 2%

geoffky

imagine the payment shocks people are going to get if they buy soon and over the next few years the rates go a lot higher quickly....

Dithering_Dad

geoffky wrote: »

imagine the payment shocks people are going to get if they buy soon and over the next few years the rates go a lot higher quickly....

Exactly my point. If they buy now they have a chance to get a really low fixed rate.

If, as you say, interest rates go a lot higher quickly, these low rates won't be available for people who wait 3 years before they buy.

Cannon_Fodder

To continue agreeing with DD;

This STR calculation becomes less attractive if you need to use all the interest to live off, which I believe was mentioned.

Others, who pay rent out of interest, makes it become a closer calculation.

Yet others, who pay rent out of salary, at a similar level as a mortgage payment and the interest accumulates, are best placed. That's where STR really works during a HPC.


Perhaps http://en.wikipedia.org/wiki/Opportunity_cost might help;

"A person who invests $10,000 in a stock denies themselves the interest they could have earned by leaving the $10,000 in a bank account instead. The opportunity cost of the decision to invest in stock is the value of the interest."

And vice versa. A balancing act.


Just to disagree with DD a little, for old times sake - I'm don't think right this minute is the must-do moment. Time for rates to continue downwards, the recession to unravel a bit, inflation should ease further, house prices keep heading down, etc...

How long until rates stop dropping or return to say 3%? - that's pretty affordable - and getting the interest rate right at the bottom is about as likely as getting the stock market or house price at the very bottom...

The summer?

But only for STRs who eat into their interest. The rest will still be adding to deposits, getting better deals by reducing their LTVs etc...

msquandary

Dithering_Dad wrote: »

Your example is exactly what I was talking about when I said the HPC people are basing their calculations on just how much the house is falling by and not on all the other factors I mentioned.

If we take your example, if a house cost £100k one year and you have £100k saved. If you buy it that year then you will be mortgage free and have no financial outlay to put a roof over your head.

If instead you wait a year and rent a place for £850pm = 12 months x £850pm = £10,200. You are therefore £200 worse off by buying a year later, even though the house price has fallen.

Things get even more interesting if the house was £174,999 and bought during the stamp duty holiday, a low interest mortgage was arranged on it and it was renovated/decorated/carpeted by tradesmen desperate for work. Suddenly the imagined 20% HPC savings by buying 3 years later are eaten up by having to pay stamp duty, a higher mortgage rate and higher costs for tradesmen.

As far as inflation is concerned, if you had an STR pot of £100k, continue to STR for 5 years (with an average inflation figure of 5%) and use all of your interest for living costs, your STR pot will be worth £78,353 in real terms. So if a £100k house is falling by 10%pa for 5 years, the house will be worth £62092. You will have waited 5 years to buy a house and will have saved £16,261 - NOT £37908 (£100k original house value - £63092 HPC house value).

The £16,261 saving will be further eroded when you add in the cost of renting, any stamp duty payable, higher mortgage rates, etc.

DD, thanks for this. I really enjoy your posts. I love the way you have such a balanced objective view of things, it's refreshing antidote to the panic so many of us are feeling.

Dithering_Dad

Cannon_Fodder wrote: »

To continue agreeing with DD;

*faints again*

Cannon_Fodder wrote: »

Just to disagree with DD a little, for old times sake - I'm don't think right this minute is the must-do moment. Time for rates to continue downwards, the recession to unravel a bit, inflation should ease further, house prices keep heading down, etc...

How long until rates stop dropping or return to say 3%? - that's pretty affordable - and getting the interest rate right at the bottom is about as likely as getting the stock market or house price at the very bottom...

The summer?

But only for STRs who eat into their interest. The rest will still be adding to deposits, getting better deals by reducing their LTVs etc...

Agree with your assessment here, but my figures were aimed primarily at PN, who is spending all of her STR interest and is losing out on any state benefits she would be entitled to without her huge STR pot. I would say that the time has arrived for PN to buy her home - the time for other STRs who aren't dipping into their STR pots is still in the future but they should keep doing calculations because eventually the right time will come for them too - not at the bottom of the market but at the point where it's more financially beneficial for them to buy than to keep renting.

TDS_2

Dithering_Dad wrote: »

If a FTB can buy a house now that has already been discounted by 20% and then knock the seller down by a futher 10% or 15%, they will have 30 - 35% discount from peak.

I agree with what you're saying, but in my experience it isn't possible at this moment in time to get the "30 - 35% discount from peak" you mention. Perhaps on a new-build, and certainly on a city centre flat, but not on a 'family home'.
Anything that's marked down by 20% in my area is snapped up at near asking price.
This proves two things. First, there is still a market out there (if you price sensibly). Second, house prices are 'sticky'. Yes, they've dropped ~15% in a year, but it's a steady and relatively slow decay (when compared to any easily traded commodities). Anything that's priced at slightly below the current rate will sell, but it takes time for that price to become the new norm.

IveSeenTheLight

formulaonefan wrote: »

they have done it again! interest rate at 2% but mortgages aren't coming down! what a waste!!!

But trackers are coming down.
With recent drops, my tracker has went from 5.76% down to 2.26%.

I'm now paying my lender 39% of the amount of interest than I was a couple of months ago.
:T

As I've maintained my mortgage payments, this has allowed me to reduce more capital than normally, thus reducing my amortization period.
:T

Dithering_Dad

msquandary wrote: »

DD, thanks for this. I really enjoy your posts. I love the way you have such a balanced objective view of things, it's refreshing antidote to the panic so many of us are feeling.

Aw, cheers msquandary.

I think homeowers need to remember that they bought a house in order to put a roof over their family, despite any gains and falls in the market, the roof is still there. I never really had the money that my house 'gained' in the HPI and by the same token I'm not losing the money that my 'lost' in the HPC. The money was never really there to lose or to gain. My only focus is, and has always been, on how large my mortgage is and how much I can pay off it.

I think hopefull FTB's need to remember that there is more to the financial calculation than just percentage falls.

Really2

You will be accused of talking to yourself in a min.:D

IveSeenTheLight

Kez100 wrote: »

There are a lot of trackers out there that will fall.

I don't think they will be low for long.

I haven't yet seen my 0.5% fall and I am on a tracker. That affects my interest this month and next month, January, I will see the 1.5% fall. This 1% will only affect me in Februarys mortgage payment.

I overpay and pay a fixed amount, so it's of no consequence to me, but it is to many and the economy hasn't really seen the effect of those who are due the cut and will spend it. There is always a long lag.

Once spending restarts or we print money then inflation will take off and so will the rates again. IMO.

Its a pity you are not getting it related so quickly.
I received a letter within a couple of days confirming the interest I paid at the start of December was 1.5% less.
I fully expect to get the letter confirming the further 1% drop in January