Why is a Mortgage term usually 25 years?

Martinslovechild

The £100,000 house of 1992 cost the same to buy as a £250,000 house now.

I wish.  Where I live, the £100,000 house of 1997 costs the same to buy as a £250,000 house now.

I only hope that house prices do crash so that I get an opportunity to trade up, but that would unfortunately cost me way too much cash at the moment.

However, If prices fell by 30%, I'd have a lot less cash to find to fund the move.

Milky_Mocha

Sorry to ask this question as it is totally irrelevant to this topic but I've wondered for a while now...

MLC, are you really Martin's love child ??

Martinslovechild

MLC, are you really Martin's love child ??

;D

westernpromise

I wish. Where I live, the £100,000 house of 1997 costs the same to buy as a £250,000 house now.

I only hope that house prices do crash so that I get an opportunity to trade up, but that would unfortunately cost me way too much cash at the moment.

However, If prices fell by 30%, I'd have a lot less cash to find to fund the move.

Sorry, to be a bit clearer - what I meant was that the monthly interest cost at 1992 mortgage rates on a £100,000 house would have been about the same as it is now on a £250,000 house.

That is, back then we had ~12% interest rates, now they're ~5%. All that's happened is that prices have adjusted upwards to ensure that the actual cost of servicing the debt is about the same as it's always been.

Thus, if you could afford to fork over £1,000 a month in 1992, that outlay would have served a £100,000 mortgage. £1,000 a month now would serve a mortgage of £240,000.

For some reason I can't fathom, the government thinks this is some sort of achievement. Brown actually seems proud that he's caused a house price bubble and inflation of > 100%. God forbid he should ever start to think about any other kind of inflation that way.

Re your situation, bear in mind that at present, the true cost of renting versus buying is about the same. Typical rental yields are about 5%. Mortgage rates are also about 5%. So, whether you are renting the house, or renting the money which buys the same house, either way it costs you the same per annum: ~5% of the house's value.

Renting offers an advantage over buying, in that you are not exposed to a price crash. Also, long term, you are better off putting money into the stock market than you are paying off mortgage capital. The stock market has always outperformed houses when you factor in the cost of maintaining them (which hardly anyone ever does). So over 25 years, you could put less into the stock market than into a mortgage and still have enough to pay off the lender.

It is partly because of Brown's excessively cheap money that so much capital has flowed into houses instead of stock markets these last 8 years. This has had disastrous consequences for the value of our stock market, and of course for pensions which rely on stock market growth.

The other cause of the house bubble and the pensions crisis is, of course, his tax raid on pension funds.

A housing crash will immobilise everyone who has previously bought. That's the problem. In 1988, I paid £85,000 for a London flat. 3 years later, it was worth £60,000. Had I wanted to trade up, I'd have needed about £40,000 in cash. So I didn't move, and nor did anyone else, and of course changing job was out of the question unless you could do so without moving....and so on.

Martinslovechild

WP,

I understand your point now.  You're correct in that the overall net cost of funding a house purchase is pretty much the same as back in 1992.

Brown seems proud probably because the majority of voters are also smug that their main asset has doubled or trebled in value - however, I believe that it's a false sense of security and only really truly benefits those individuals who have bought several properties which they're renting out and then sold at the right time, thereby locking in profits.

As for renting, I don't rent and never have.  However, moving from my current house to a larger property would currently cost me in excess of £200K which i'm not really prepared to do at the present time.

Personally, a housing crash for me would do the opposite of immobilisation - I am literally gagging for it to happen. For example, if my £200,000 property and somebody else's £400,000 property both drop by 30%, then they would then be worth £140,000 and £280,000 respectively - therefore, I would only need to find £140,000 to trade up rather than £200,000 - a saving of £60,000, which is not to be sniffed at.

As for shares, I'm the Chairman of an Investment Club and know first hand about the stock market.  In fact, after starting the club over 3 years ago, we spent the first 18 months sitting on a paper loss.  The first AGM was a bit sickening actually - convincing people that this was a long-term thing and that our portfolio would come good.  In fact, it has - we're now 60% up so everybody's very happy.

deemy2004

Brown is proud, because Britain has grown far more than Europe, year on year for the last 7 years.

Credit may be cheap in the UK, but everywhere else its a lot cheaper i.e. Europe 2%, USA 2.25%

This period will probably be recognised as the british miracle period, if it has not already been done.

I.e. the rest of the developed world has suffered whilst Britain has boomed with LOW interest rates, and LOW inflation and HIGH employment, - a miracle for any British Government let alone a Labour government which usually have too many crackpot ideas to make growth sustainable and usually end with a bust within the lifetime of their first election.

So yeh Brown has a lot to be proud of, unemployed UK 4.5%, Germany / France 10%  etc....

Even the debt that is the achilles heel as compared to euroland is not that high.

Offcourse, Britain is drifting into a tough period, but given the track record to date its likely to be far more resiliant than say the USA, France and Germany to whats to follow.

Praise where Praise is due....

The Bank of England is acting quite wisely, by upping interest rates last year. Usually governments leave things far too late i.e. only start upping rates once a crisis becomes apparent but by then its too late and there is a tendancy to overcompensate by raising rates far higher than they would otherwise have gone.

Which is why unlike much of the consensus, I don't think interest rates have peaked YET, The BOE has not finished the job, as its not thinking like a government would think in terms of votes for low rates unless its a case of panic stations.

So watch out 2005 rates are likely to hit 5%

Martinslovechild

I sometimes wonder, though, whether things would have been exactly the same with or without Brown.

As we've recently gone through a global recession, I wonder if things would really have been that different if nobody had 'tweaked' any part of the UK economy.

Additionally, it's important to note that Brown has also presided over a stock market that is effectively unchanged from the same level in 1997, meaning that the only beneficiaries of New Labour are indeed home owners.

For everybody else, the demise of MIRAS and Marriage Allowance, the raiding of dividends in our pension pots, National Insurance changed to National Insurance Tax, and a policy of fiscal drag year-on-year (i.e. 50,000 more people becoming higher-rate taxpayers annually) are probably more than enough for a lot of people to take.

The problem is that a lot of people don't notice things such as fiscal drag or NI Tax until rates start climbing, and then they wonder what the hell just happened.

deemy2004

yep, weve had 7 years of plenty the next few years are probably going to be tough.

You can't blame the stock market or the housing market on the Mr Brown, because it was a global phenomena, i.e. the boom in stocks, bust, boom in housing - global.

Only positive is that Britain boomed so the house prices were marked up MORE than elsewhere because of that reason, the economy was awash with cash and the only place it was going was into housing.... as you the stock market drifted..

have to always look at the situation in relative terms i.e. Britain relative to other countries. I recall britian being the poor man of europe, getting x billion rebates on their euro contributions because of how poor we were relative to the likes of germany and france. No more ! Look at the stats the performance over the last 10 years or so - has been a bit of miracle.

zcaprd7

Not sure if Brown can be that proud of an economy that was made inherently more robust than our European counterparts by Thatcher's 'supply' side reforms...

Yes, the T-word

If you think we have a pensions crisis check out France or Germany, I think the Euro will be in big trouble in the future - at which point (as long as we still have sterling) you can sell up and buy a collection of houses around Europe...

westernpromise

You can't blame the stock market or the housing market on the Mr Brown, because it was a global phenomena, i.e. the boom in stocks, bust, boom in housing - global.

Not entirely. The UK stock market has performed worse than any major index since 1997, despite all this supposed prosperity.

It's difficult to point to anything Brown has done which can be said to have contributed to UK economic success. All he has done is doubled the tax take, which means we have grown less than we would have done, because individuals can spend money more efficiently than bureaucrats can. Even Arthur Andersen's idea of liberating the BoE was intended to align us with Europe so we could join the euro, not to benefit the economy per se. Ditto his flogging our gold reserves off cheap.

Only positive is that Britain boomed so the house prices were marked up MORE than elsewhere because of that reason, the economy was awash with cash and the only place it was going was into housing.... as you the stock market drifted..

I am unconvinced that Britain has boomed. Some Cambridge economists recently came out with some analysis which showed that GDP growth since 1997 tallied exactly with growth in personal debt. In other words, this growth is all on tick and one day the bill will have to get paid.

have to always look at the situation in relative terms i.e. Britain relative to other countries. I recall britian being the poor man of europe, getting x billion rebates on their euro contributions because of how poor we were relative to the likes of germany and france.

Actually we got rebates because Thatcher demanded them. We were paying more into the EEC than anyone else and she refused to pay. The other EU countries capitulated because UK membership of the EEC was so valuable to them. Some are now starting to whine that because we're doing OK we should cough up more...

No more ! Look at the stats the performance over the last 10 years or so - has been a bit of miracle.

Who deserves the credit though? It actually belongs, IMHO, not to The Tories or Labour but to the City. In 1992, they destroyed the then government's economic policy by wrecking the pound's membership of the ERM. That enabled interest rates to be cut to a level where the economy could recover, thanks to Margaret's supply side reforms. The economy recovered over the dead body of the Tories' economic policy, not because of it, and we have City speculators to thank. Incidentally, Labour supported our ERM membership at the disastrously high rate...