Negative Equity

Dithering_Dad

ukcarper wrote: »

The flaw in your argument is at say 3% inflation Ernie’s rent will be £1000 in about 12 years and he won’t be able to save anymore where as Bert’s mortgage will still be £1000.

I don't agree that rents increase linearly with inflation - I rented out my house in 2001 and a quick peep at rightmove shows that the rental in that area is actually less than I rented my house out for - probably due to more availability I guess?

However, if inflation affects Ernie, then it also affects Bert. Unless he fixed his mortgage for 25 years, inflation will impact his mortgage interest rates, so he may be paying more than Bert. Certainly his mortgage payments will be more erratic than Ernie's rental payments.

If we factor in that people move on average every 7 years, the figures get even more interesting. Bert has to pay estate agents, legal costs, stamp duty, etc. when he moves house. Ernie simply gives notice and a month later he's moved - zero cost.

silvercar

DD, all your calculations will never convince me that rent is the cheaper option unless you include in your calculations the cost of moving every year on the whim of a landlord deciding to sell up / increase the rent / be carp at repairs.

The emotional upheaval of having to look for a new house to recreate my home each year is not worth the money.

Generali

phil1873football wrote: »

I bought a 4 in a block style cottage in the peak unfortunately...Sept 07 for £70k fixed as I was worried incase the prices kept rising and rising and I would be left living with parents for the rest of their lives. I can easily afford the repayments which is fine as that is what I planned to achieve. I didn't want to over stretch myself so that if something happened with my job or bills rose, then i wouldnt be struggling. So I am fine with that, around 3months after moving in, I got offered a new job with a substantial rise in pay which means I can now afford a bigger and better house rather than a flat.

My dilema is this though...my property rose £5k in the first year to £75k after some improvements I made, it has now been valued recently at £65k so overall, a £5k loss from my purchase price. I took out a 100% mortgage fixed for 5yrs (my choice, so totally fine with that) so my flat is now in negative equity. The problem being is the council residents above me are a-holes, total and absolute a-holes and I NEED to move as soon as possible. I need to get up at 06.30 for work, but they seem to want to walk about back and forth back and forth and slam doors until 1am sometime 2am during the week, so very tired constantly which leave me stressed, anxious and drained....and believe me, its not a nice way to feel all the time.

Well I cant sell my house as its in negative equity so won't be able to raise the funds for my new property and on top of this...around February 2009, Mortgage Express (part of Bradford and Bingley, which is now state owned) stopped all further lending and any newlending. This was very frustrating as they had previously approved me for further lending and I was currently looking for new properties.

So i am stuck in this property for the foreseable future. But I guess, I just need to deal with it and get on with things hoping something will change.

What does annoy me though is the fact that i contributed to saving this d@mn bank helping them...but now they won't help me...I thought the Government took over these banks to save them and allow lending to start again...what seems to have happened is they've taken them over and ceased all lending...so much for the Government helping us

Anyways, thought I would let you know my predicament

Sorry to hear of your predicament.

Could you rent out your current place and use the money to rent somewhere else? You said you had a pay rise.

Dithering_Dad

silvercar wrote: »

DD, all your calculations will never convince me that rent is the cheaper option unless you include in your calculations the cost of moving every year on the whim of a landlord deciding to sell up / increase the rent / be carp at repairs.

The emotional upheaval of having to look for a new house to recreate my home each year is not worth the money.

From your second comment, it looks like I don't need to convince you that renting is the cheaper option.

I agree that for people like you and I, buying a house is the better option because we're stable and we want to provide a home for our families - that in itself is worth a lot money (to us anyway).

However, from a pure financial standpoint, you can be just as well off renting as you can owning. In certain cases, the added mobility of renting could provide better career opportunities than with home ownership.

I'm not pushing either case, I'm just saying that both as as valid as each other and neither one is better than the other.

ukcarper

Dithering_Dad wrote: »

I don't agree that rents increase linearly with inflation - I rented out my house in 2001 and a quick peep at rightmove shows that the rental in that area is actually less than I rented my house out for - probably due to more availability I guess?

However, if inflation affects Ernie, then it also affects Bert. Unless he fixed his mortgage for 25 years, inflation will impact his mortgage interest rates, so he may be paying more than Bert. Certainly his mortgage payments will be more erratic than Ernie's rental payments.

If we factor in that people move on average every 7 years, the figures get even more interesting. Bert has to pay estate agents, legal costs, stamp duty, etc. when he moves house. Ernie simply gives notice and a month later he's moved - zero cost.

Inflation does not effect Bert’s mortgage rate it will fluctuate with interest rates but he could in fact be paying a lot less now than when he started.

I have owned 4 houses in 37 years so I have move less than the average. I bought the house I am in now 24 years ago and as it was my 4th home and I have never mewed I was able to put down a 50% deposit and would imagine it would have cost me more in rent when I bought it.

Like I said I paid £9000 less Mortgage last year than I would have in rent and using your argument that rent haven’t change since 2001 I’ve saved that 8 times £9000 that’s £72000 that should have covered any moving fees.

Dithering_Dad

ukcarper wrote: »

Inflation does not effect Bert’s mortgage rate it will fluctuate with interest rates but he could in fact be paying a lot less now than when he started.

I have owned 4 houses in 37 years so I have move less than the average. I bought the house I am in now 24 years ago and as it was my 4th home and I have never mewed I was able to put down a 50% deposit and would imagine it would have cost me more in rent when I bought it.

Like I said I paid £9000 less Mortgage last year than I would have in rent and using your argument that rent haven’t change since 2001 I’ve saved that 8 times £9000 that’s £72000 that should have covered any moving fees.

Let's try this another way, because I don't think I must be explaining myself very well.

Why are you paying £9000 less mortgage last year that you would have paid in rent?

Because my mortgage has reduced due to the payments I have made into my mortgage account.

Right, so if I understand you correctly, you spent the last 37 years paying mortgages, some of which will consist of interest payments and some of which will consist of capital repayments?

Yes, that's correct. As time went by, my capital repayments reduced my mortgage debt and so the interest I pay on my mortgage goes down.

Yes, and eventually you will be mortgage free.

Yep. I can't wait for that happy day.

You realise that the reason your mortgage payments went down is because your equity investment went up?

Yes....

And you agree that mortgage interest payments to the bank are the equivalent of rental payments to a landlord?

Yes...

Then you must see that the capital repayments you made each month onto your mortgage are equivalent to the savings a tenant could make into a bank account?

Yes...

So does it not follow that, just as your capital investments reduce the amount you owe to the bank, which in turn reduce your mortgage interest payments, a tenant's bank account savings increase the amount of bank interest received and that this interest could be withdrawn from the bank each month and used to subsidize his rent. Effectively reducing the amount of rent he pays from his own pocket?

Ah yes, I see what you're saying now - Both the tenant and homeowner are investing the same amoutn of money, one into debt repayment and the other into a savings account. One reduces the amount of interest paid on a loan and the other increases the amount of interest received from the bank account. The home owner benefits from reduced mortgage interest by having smaller monthly payments and the tenant would equally benefit from having lower monthly rental payments if he used his svaings interest to subsidize his rent.

Yes, the net effect is that both of them have the same capital amount at the end of the 25 year stint.

phil1873football

Generali wrote: »

Sorry to hear of your predicament.

Could you rent out your current place and use the money to rent somewhere else? You said you had a pay rise.

Could be an option, I will need to look into that!!

The only thing that puts me off that idea is all the hassles or bad tenants, not finding a tenant and I would also need to find out if my mortgage company would allow this (not got much confidence there.lol)

But thanx for the advice:beer:

JayScottGreenspan

DD, I see what you're driving at.

Also, at the moment I think renting is not only better from a mobility standpoint, but also much better financially given that house prices stil have some way to fall.

These are unusual times, though. In more normal times, and unless you are an ace stock-picker, it is normally cheaper overall to own.

The Times' mortgage-vs-rent calculator is crude, but play around with some of the variables and it's worth a thousand words:
http://www.timesonline.co.uk/tol/money/calculators/article5771800.ece

ukcarper

Dithering_Dad wrote: »

Let's try this another way, because I don't think I must be explaining myself very well.

Why are you paying £9000 less mortgage last year that you would have paid in rent?

Because my mortgage has reduced due to the payments I have made into my mortgage account.

Right, so if I understand you correctly, you spent the last 37 years paying mortgages, some of which will consist of interest payments and some of which will consist of capital repayments?

Yes, that's correct. As time went by, my capital repayments reduced my mortgage debt and so the interest I pay on my mortgage goes down.

Yes, and eventually you will be mortgage free.

Yep. I can't wait for that happy day.

You realise that the reason your mortgage payments went down is because your equity investment went up?

Yes....

And you agree that mortgage interest payments to the bank are the equivalent of rental payments to a landlord?

Yes...

Then you must see that the capital repayments you made each month onto your mortgage are equivalent to the savings a tenant could make into a bank account?

Yes...

So does it not follow that, just as your capital investments reduce the amount you owe to the bank, which in turn reduce your mortgage interest payments, a tenant's bank account savings increase the amount of bank interest received and that this interest could be withdrawn from the bank each month and used to subsidize his rent. Effectively reducing the amount of rent he pays from his own pocket?

Ah yes, I see what you're saying now - Both the tenant and homeowner are investing the same amoutn of money, one into debt repayment and the other into a savings account. One reduces the amount of interest paid on a loan and the other increases the amount of interest received from the bank account. The home owner benefits from reduced mortgage interest by having smaller monthly payments and the tenant would equally benefit from having lower monthly rental payments if he used his svaings interest to subsidize his rent.

Yes, the net effect is that both of them have the same capital amount at the end of the 25 year stint.

If he uses the interest to subsidise mortgage he will have 300 X 12 X 25 + 10k= 100k at the end of 25 years lets be generous and say he can get 4% net that would be £4000 or £333 per month. 25 years ago £100k would have bought you a very nice house my house was £60k 24 years ago and it would cost me in excess of £1000 per month to rent now 3x the interest on 100k.

Thrugelmir

CPS wrote: »

Because I am going to want to get out of my (small) apartment at some stage in the (near) future, why not do it now when I can still have time to rent in a falling market and get back in at the bottom. If I wait for the prices to come back up, then the same problems happen all over again - Buy in a boom, Neg Equity etc etc. The onyl way I am ever going to have buigger than 15% deposit is when my place make smoney and that is never going to happen in the next 10 years or so.

Agree with your sentiments regarding the next 10 years.

What you say makes sense. My only provisio would be is that a "good" house will always go for over the asking price. Trying to call the bottom of the market and find your ideal home at the same time will not be easy........