Another 50% to fall off property - Robin Griffiths (Expert Economist)

the_ash_and_the_oak

Dithering_Dad wrote: »

Except those who buy with fixed interest mortgages. People on here tend to forget that you don't normally stay in the same house for the rest of your life, especially if you're a FTB. The average stay is 7 years. What you negotiate on the price of the house is immaterial because it's unlikely that you'll ever wholly own that particular house (unless you all have enough money to buy a house outright).

You've said this before about the fixed rate savings outweighing the capital cost savings - and I did think I knew where you were coming from - if it was going to be a lifelong house. But with a < 7 year house I'm unsure again what you mean

eg - lets say 5 years.

i) put down 30k on 160k borrow 130k at 5%
vs
ii) wait and put down 40k (30k+10k saved) on 130k borrow 90k at 9%

(I think this is what you are saying, right?)

but my problem here is, move after 5 years and then

i) sell at 130k means 0k deposit plus 10k paid off mortgage = 10k deposit for 2nd house
vs
ii)nothing to sell = 40k deposit for 2nd house

picked figures randomly - feel free to change to illustrate better.

Dithering_Dad

dopester wrote: »

Last night I ran a few calculations for Chris. The value of the home he was going to buy via one of the government-homebuyer help schemes, has fallen from an initial £250K... to the 230K he was to buy it at. Then he rented instead and saw the same property fall to £210K, and now £190K. £40K lower than the amount he was going to proceed at.

If you had £40K on a mortgage over 25 years @4% your total repayment obligation: £213 per month = £63,900 to repay. (£40K loan to repay + £23,900 of interest)

If you had £40K on a mortgage over 25 years @ 5%, your total repayment obligation: £237 per month = £71,100 over 25 years to repay. (£40K loan to repay + £31,100 of interest)

What you are saying that, yes, he might see the value of that property fall another £40K, but it will still end up hurting more as interest rates on the lower amount you will have to borrow will be higher... costing you more overall?

Somehow I don't see it.

Nope, I'm not saying this, or anything like this at all! I certainly wouldn't advise anyone to fix over 25 years (as you have indicated in you examples where one mortgage was fixed at 5% and one fixed at 6% for full term).

Also, I really can't argue against examples where someone has a £40k mortgage against a property that can fall in value by £40,000!!!! How unlikely is that?

How many FTB properties do you think have a further £40k to fall? Seriously?

dopester

Dithering_Dad wrote: »

How many FTB properties do you think have a further £40k to fall? Seriously?

Loads, considering how so many areas are so expensive to buy anything half-decent in.

http://forums.moneysavingexpert.com/showthread.html?t=1249239

That one perhaps? After all, a real FTB was about to buy it at £230K.

You're confusing what I put in front of you. Possibly my fault by how I presented it.

I'm saying the asking price dropped £40K. So that is £40K he wouldn't now have on a mortgage. If you took that £40K alone over 25 years as if it were a standalone mortgage.. averaging 4% and 5%.... those are results of what you have to pay back.

Dithering_Dad

the_ash_and_the_oak wrote: »

You've said this before about the fixed rate savings outweighing the capital cost savings - and I did think I knew where you were coming from - if it was going to be a lifelong house. But with a < 7 year house I'm unsure again what you mean

eg - lets say 5 years.

i) put down 30k on 160k borrow 130k at 5%
vs
ii) wait and put down 40k (30k+10k saved) on 130k borrow 90k at 9%

(I think this is what you are saying, right?)

but my problem here is, move after 5 years and then

i) sell at 130k means 0k deposit plus 10k paid off mortgage = 10k deposit for 2nd house
vs
ii)nothing to sell = 40k deposit for 2nd house

picked figures randomly - feel free to change to illustrate better.

Again, it's difficult to form a adiscussion around non real-world values/events.

In your example, the option seems to be 'buy now' and sell in 5 years (for some reason) or don't buy at all and live in rented accomodation for 5 years. Do you really think it likely that someone who is keen to buy now, will instead wait a further 5 years in rented accomodation?

WHy did the person move after 5 years? Why did the renter decide to continue to rent - did he have a crystal ball to know that it's no point buying now because in 5 years he'll get a divorce and have to sell?

Graham_Devon

Dithering_Dad wrote: »

When I first started my 'get a fixed rate' campaign, Alliance and Leicester had a fixed rate mortage, fixed for 5 years at a rate of 3.99% that was fee free. You had to have a 40% deposit, but if most FTBers on here are to be believed - especially the regulars - everyone has hefty deposits, some even claim to have 50% and more.

Obviously as time goes by and we get closer to the point when interest rates start rising, these deals will fall away to be replaced by ones with higher rates and possibly higher arrangement fees (remember though, most arrangement fees are a set amount that you'll pay regardless of how much you paid for your house - so if you wait 3 years to buy you'll still be paying the same arrangement fee but you'll also be paying a higher mortgage rate).

I can only base these decisions on my own circumstances, and you guys must base your decisions on your own. If I had been wating 3 to 5 years for a HPC, I personally would not want to spend a further 3 to 5 years waiting to buy a house at the lowest point, especially if it meant that my monthly mortgage payments were at the same level as someone who bought 3 years before me.

As far as proving my calculations - it's impossible to do (as I'm sure you're aware ) because everyone is different and this calculation relies on the following factors:

1. Your credit worthiness (no point even looking at getting a decent mortgage rate if you have a bad credit history).
2. The cost of the house you're buying
3. The size of your deposit
4. Your LTV (Loan To Value) determined by #2 & #3 above.
5. How much your mortgage arrangement fee is (though you'll pay this anyway whether you buy now or later and I suspect these will only increase in price over time).
6. How much you're paying in rent per month.
7. How much your fixed rate mortgage would be per month.
8. How long you think you'll actually live in your new house (average is 7 yrs)
9. How long you want to fix for (I'd suggest between 5 years and the time noted in #8.)

I'm sure I've missed some variables, but you get the idea.

Put all these into the mix and see how much they come to if you buy a house in 3 months time, or buy a house in 3 years time (obviously based on what you estimate a similar house will cost and what you think the mortgage rate could be).

If the calculations work for you, then maybe you should consider buying - if not, then stay in rented for as long as it takes until the calculations do work. Simple.

p.s. there is a thread on the mortgage board where they track the best fixed rate deals...

Thanks, but it didnt really answer the question. I don't believe that many people on here have huge deposits. I believe they are very few and far between.

A couple MEWing, yes. Also, most of the people you agree with on a lot of things on here, are landlords, not personal buyers.

But I was mainly looking for actual mortgage deals, on the market, now, which you could carry out what you have been suggesting on a fair few threads.

I'm not trying to catch you out! I have just always thought it everytime you say it. The same as I have asked where these magical 90% mortgages with low interest rates others seem to bang on about come from....when asked, no one can actually deliver a mortgage product, and seem to slope off on a tangent.

So I have wondered a few times, so this time, thought I would ask where these deals you are talking about are, as I certainly cannot see them.

You are talking about buying a house now, because of low interest rates and fixing to save money in the long run. But the deal you gave is only a five year fix? At 4%?

To do what you are suggesting, i.e. to equate the falls with the level on interest, I would have thought you needed more than a 5 year fix on a 60% mortgage, which could be incredibly hard to remortgage when you get put on the SVR rate. I thought you were talking about 10 year+ fixes in all honesty.

Dithering_Dad

dopester wrote: »

Loads, considering how so many areas are so expensive to buy anything half-decent in.

http://forums.moneysavingexpert.com/showthread.html?t=1249239

That one perhaps? After all, a real FTB was about to buy it at £230K.

You're confusing what I put in front of you. Possibly my fault by how I presented it.

I'm saying the asking price dropped £40K. So that is £40K he wouldn't now have on a mortgage. If you took that £40K alone over 25 years as if it were a standalone mortgage.. averaging 4% and 5%.... those are results of what you have to pay back.

As I said, do the calculations yourself and if it makes sense to buy then buy, if it doesn't then don't.

However, I can't imagine that there aren't too many FTBers who are looking at buying a £230k house with a £40k mortgage (i.e. people who have £190k deposits saved up). Do you?

Indeed, your chap should be looking at £190k houses and being rent/mortgage free forever.

Out of interest, how much is he paying in rent? (I assume that he's renting in similar style accomodation to what he's considering purchasing?)

Certainly in my area, you'd be looking at around the £900 pm mark for a property like that. If he bought with the alliance and leicester mortgage that was available last month (fixed for 5 yrs at 3.99%), he'd have an interest only mortgage of £133 per month!

Each month he'd be saving £667 by owning a home than renting. Though as long as he's getting around 4.5% on the £190k savings he'll be OK....

Calculations, calculations....

the_ash_and_the_oak

Dithering_Dad wrote: »

Again, it's difficult to form a adiscussion around non real-world values/events.

In your example, the option seems to be 'buy now' and sell in 5 years (for some reason) or don't buy at all and live in rented accomodation for 5 years. Do you really think it likely that someone who is keen to buy now, will instead wait a further 5 years in rented accomodation?

WHy did the person move after 5 years? Why did the renter decide to continue to rent - did he have a crystal ball to know that it's no point buying now because in 5 years he'll get a divorce and have to sell?

No not really - picked 5 as seems to be around the average that ftbs stay in first place - its really that which makes me think buying now isn't such a good idea because may negatively impact deposit available to buy 2nd place. thought your idea about buying now to avoid higher rates made a certain sense if moving into somewhere super long term - but didnt understand so much how it would work if buying an FTB place and selling after the average of 5 or 6 years.

agree that someone keen to buy now won't be so into renting for another 5 years - just looking at it more in terms of numbers more than anything else really

Dithering_Dad

Graham_Devon wrote: »

Thanks, but it didnt really answer the question. I don't believe that many people on here have huge deposits. I believe they are very few and far between.

A couple MEWing, yes. Also, most of the people you agree with on a lot of things on here, are landlords, not personal buyers.

But I was mainly looking for actual mortgage deals, on the market, now, which you could carry out what you have been suggesting on a fair few threads.

I'm not trying to catch you out! I have just always thought it everytime you say it. The same as I have asked where these magical 90% mortgages with low interest rates others seem to bang on about come from....when asked, no one can actually deliver a mortgage product, and seem to slope off on a tangent.

So I have wondered a few times, so this time, thought I would ask where these deals you are talking about are, as I certainly cannot see them.

You are talking about buying a house now, because of low interest rates and fixing to save money in the long run. But the deal you gave is only a five year fix? At 4%?

To do what you are suggesting, i.e. to equate the falls with the level on interest, I would have thought you needed more than a 5 year fix on a 60% mortgage, which could be incredibly hard to remortgage when you get put on the SVR rate. I thought you were talking about 10 year+ fixes in all honesty.

I've never said that everyone had to have 'huge' deposits, but I think you'd be surprised at the level of deposits MSE members have acquired:
http://forums.moneysavingexpert.com/showthread.html?t=1490473&highlight=

On all of the threads you've mentioned, I've given the same message - "if you're thinking of buying within the next 18 months then you might be better off buying now and getting a decent fix", but that people should do their own research.

In the Current climate, if people don't have adequate deposits, then they're not going to get a mortgage fixed at a decent rate (or indeed a mortgage at all). This is no secret. So clearly my advice is aimed at those people who do have adequate deposits and who are in a position to buy in the next 18 months.

As I keep saying (and as you keep ignoring :rolleyes:), everyone is different and so people should do their own research. My research was carried out for me and my circumstances, which is that I want to have my mortgage paid of in five years. I therefore looked at fixing it for five years and then when it went into the SVR period, I would either be mortgage free or have such a small mortgage that it would not make any difference to bo on SVR.

Your circumstances are different, so you want to fix for 10 years. Fine, find a mortgage product and do your calculations - though if you're one of the guys who believes that we're going to have 40% further drops, then save yourself the bother doing the calculations (though I suspect you wouldn't be in my criteria of buying in 18 months anyway).

Graham, you can use google as well as I and can find details on fixed mortgages as I can. I suggest you think about using a Mortgage Broker though as you're thinking of fixing over a long period (10 years) and they will be able to view a wider product range than you can.

If you want to prove me wrong, go ahead but remember that any calculations you might do will be based on your own variables, so all you prove is that buying now is wrong for you. I can't prove that buying now will pay because I can only base my calculations on me and let me tell you that based on my circumstances buying is totally right!!

Graham_Devon

Dithering_Dad wrote: »

If you want to prove me wrong, go ahead but remember that any calculations you might do will be based on your own variables, so all you prove is that buying now is wrong for you. I can't prove that buying now will pay because I can only base my calculations on me and let me tell you that based on my circumstances buying is totally right!!

Well, I'm not looking to move, I was merely stating I thought you would have to take 10 year fixes to carry out your suggestions.

I don't want to prove you wrong. I was merely picking up on what you are saying on numerous threads and asking for some back up / clarification.

I do not believe you can do any of what you say, but is more of an attempt to state it's not so bad that house prices are falling.

All I wanted was some evidence that you can do what you are suggesting some people do. And that back up, is a mortgage product which allows you to do as you suggest.

I'm taking it, a mortgage product allowing you to do this is very rare, bar those under 65% LTV?

carolt

Certainly, as someone who certainly considers mortgage interest calculations as part of the calculations in buying, as a FTB without a 40% deposit, I don't see long-term (ie 10 year plus) fixed rates cheap enough to justify it.

Despite the lowering of base rate, for people like me ie ordinary buyers, long term fixed rates are still higher than they were when I was looking to buy in 2007 - and Bank of England base rate was much higher.

No point taking a 3-5 year fix now on a house if in 3-5 years when I need to remortgage, I've lost all my equity, can't remortgage or if I can, it's just at the point when interest rates have gone through the roof.

I think both falling prices and low interest rates will stay for another couple of years.