OH MY GOODNESS - the house price crash hits home!

Batchy

Spartacus_Mills wrote: »

I do not think anyone here is boasting, apart from the OP that she did not catch a cold.

The rest of this thread is about personal perspectives and how stuff works for them.

From my POV if I sold my house to unleash the profit I have made (it has more than doubled in the last few years in value) and to put it in a bank to make interest, once I have lopped 40% off the interest paid in tax, I would be lucky to be getting 2% on it a year. Just under half what I would be paying out in rent. It really is a case of offsetting the saving in rent against the benefit in interest rates.

For my personal situation that would be lunacy.

I bought my property not as an investment but as somewhere to live and once the mortgage is paid then I will not have to pay hundreds out each month. Come the age of 45 I will not be paying out for housing just the costs associated with its maintainence and upkeep. That was a deliberate choice of mine and was right for me then and is right for me now. Having said that I rented for 6 months in the area prior to purchasing the house so I could see what it was like. That is not gloating or rubbing anyones nose in it. It is sharing my experience with others who are interested in the topic on a debating forum. I do not see what is wrong with that.

At the moment you wont get a great rate... but also, people should realise this is as cheap as mortgages WILL EVER BE, and probably as low as savings will ever be.

if you invest wisely for the long term... 5% is easily achievable now with virtually NO risk, other than banks going bust which UK plc won't let happen... if you are in the comfortable position of earning in the higher band, then well done, but the fact is most people would save via ISA's over the long term hence being a tax shield im not suggesting sell to invest, im saying if you planned for this ... this would be the position you find yourself in... not too disimilar!

At the moment I pay what some on here describe as a mortgage payment into my pension, hoping that in the future it will grow into something that will more than pay any mortgage 4 times over... I wouldnt knock anyone that chooses not to, so long as they admit if they got it worng that they had the same opportunity later on in life. If i save it, ill spend it, if i pension it, i can't touch it... but will hopefully reap some reward with tax advantages and what not. If i die before i retire... my family get the full value ... if i retire i enjoy it myself.

Everyone is difference, everyone does things different, and everyone has different short medium and long term needs and many people have different career paths.

we should agree to disagree but not get so emotional about it all.

chucky

Batchy wrote: »

At the moment you wont get a great rate... but also, people should realise this is as cheap as mortgages WILL EVER BE, and probably as low as savings will ever be.

the irony of it is that when house prices are cheapest mortgage rates are expensive and credit is harder to get.

when house prices are more expensive credit is cheaper and easily available.

it seems that there is a small windows of 3-6 months every 6-7 years where they are both good value

Harry_Powell

Dan: wrote: »

It's these type of threads that keeps me coming back to MSE

Keep up the good work people!

I'm the opposite, I feel that pretty much everyone comes out badly from these argumentative threads. Certainly, there is very little that is informative, moneysaving or helpful and there are few posts that add to the level of debate.

It amazes me how many people fall for these sorts of antagonistic threads. For example, every month like clockwork (full moon?), carolt fancies a rumble and so posts something in the same vein as this thread, knowing full well that it'll descend into chaos. Once the dust settles, virtually everyone feels a little discomforted from something they said in the eat of the moment, emneties are created/renewed and no one really comes out of it looking particularly well.

Contrast this with some of the decent debates we've had in here about interest rate movement, investor sentiment, house price predictions, etc. while do become heated but generally provide invaluable information and more importantly have a point.

StevieJ

Carol, your thank list is like the guest list at a Bears convention

lemonjelly

StevieJ wrote: »

Carol, your thank list is like the guest list at a Bears convention

Actually, with a lot of posts you don't need to read it to see what its tone is. Just check who's thanked it, & you'll know if it is bullish/bearish.

My gang's bigger than your gang...:D

Mr_Matey

julieq wrote: »

You'd certainly be 3 years closer to having no costs at all.

Can you elaborate on your argument here julieq?

Say I had £300k and decided not to buy a place. I rent a similar place and pay for it with the interest earned on my £300k. How does this add to my long-term cost of housing, whereas owning the house does not?

Similarly, whilst renting, Carol could be squirrelling away the difference between a mortgage payment and interest-only component so that she has a bigger deposit when she buys. Thus reducing the time it will take to pay off a mortgage when she does buy.

i.e. She may have knocked 3 years off her mortgage whilst renting.

julieq

Batchy wrote: »

if your house is worth 180k say to be paying that in rent... that means you have 170k tied up NOT earning interest... lost opportunity, ie a cost...

When interest rates are at 8% in savings... that will be costing you £1133 per month plus the 48 per month... YOU NEED CAPITAL GROWTH to justify keeping the money invested in the property... in the future your mortgage could double to 100 and this interest rate could be very achievable. so your going to be comparing 1200 with 650 per month rent... NOT SO ATTRACTIVE THEN HEY??

Even at the moment at current rate, its 425 per month plus your mortgage your paying of 50 per month thats 475 per month... BUT to sell your house now to move to another will cost 5k in fee's for a renter it will only cost 200 quid in fee's... see the flexibility advantage?????? imagine moving every year, for job purposes... see the advantage????

Flexibility is a key benefit of renting, and it's undeniable that you can move quicker if renting. But your financial analysis is wrong.

1200 a month on a mortgage for 25 years is clearly cheaper than 650 a month for 50 years, EVEN if you don't factor in inflation effects on rental costs and you ignore HPI. If you do factor them in you will find purchasing a house is more expensive early on, and progressively cheaper than as time goes on.

In reality both HPI and general inflation will work against a renter quite quickly to turn the tables. Even on interest only mortgages with modest inflation assumptions, you find the outlay on a 25 year basis is less for a mortgage than it is for someone renting, with the likelihood of a substantial capital gain. I personally wouldn't take the gamble of an interest only loan without having a plan in place to repay it, but it's not an unreasonable strategy.

If you intend to buy at some point, you CAN come out ahead in a period of deflation, but in a period of price inflation any initial period of renting is a net cost.

If you don't want ever to buy, then you also have to generate savings that will pay your rent into retirement, which is a horrifying prospect. That will cost far more than the differential between mortgage payments and rental, which will disappear and reverse anyway over time.

That is quite a premium to pay for flexibility. Some people will decide they want to do that, some won't have the option not to anyway. But the numbers are brutal: homeowning is to a high degree of probability a far cheaper option than renting.

If I were Carol, I'd be hoping I came out more or less neutral, or I'd justify losing money against my wish to have a house in a catchment area for a popular school (good luck picking up a bargain there, I fancy there might be a bit of competition though). I certainly wouldn't be explaining how I'd made a killing by filling the pockets of a landlord for 3 years (or 5 if this continues into 2011).

StevieJ

Mr_Matey wrote: »

i.e. She may have knocked 3 years off her mortgage whilst renting.

She wouldn't want to tie her money up in a fixed product in case something came along, I don't think 1% will go far towards the rent.

Mr_Matey

StevieJ wrote: »

She wouldn't want to tie her money up in a fixed product in case something came along, I don't think 1% will go far towards the rent.

I don't know enough about Carol's investment strategy, but if her money was sitting in a cash account, then fair enough.

Harry_Powell

Mr_Matey wrote: »

Can you elaborate on julieq's argument here, Harry?

Say I had £300k and decided not to buy a place. I rent a similar place and pay for it with the interest earned on my £300k. How does this add to my long-term cost of housing, whereas owning the house does not?

Similarly, whilst renting, Carol could be squirrelling away the difference between a mortgage payment and interest-only component so that she has a bigger deposit when she buys. Thus reducing the time it will take to pay off a mortgage when she does buy.

i.e. She may have knocked 3 years off her mortgage whilst renting.

Sure thing. If you had £300k in a bank account you'd be making, at most, a 2% return. £300k*2% /12 = £500. I'm guessing that you'll have to take a drop in accomodation if you're moving from a £300k home to a £500 per month rental.

Also, because you're using all of your capital interest to pay the rent, inflation is quietly eroding your capital. In 10 years it'll be worth the equivalent of £275k or less. In the same time, your house would have at least kept it's value relative to inflation.

You can only 'squirrel away' the excess if there is an excess. With interest rates so low at the moment I doubt that many people would find it cheaper to rent than to live in their +£300k home. It's easy for a single person or couple to 'slum' it for a while for financial gain, but less easy for a family due to concerns about schools and the sort of social environment you're raising your kids in.