I'm not buying

Procrastinator333

Yes repayments decrease interest, but on the other side you gain interest on savings, yes the rate you save is better than that you receive, but if it were a 25 yr mortgage, the effect of this over the first 3 years is really pretty minimal, if you want to chuck a couple of £k, which is probably too much, then by all means add that on.

Yeah, fair enough, if someone was on a lifetime tracker at 0.5% above base, then very happy days for them (well now anyway). The average BOE rate, Jan 07 to Dec 09 was 3.59%, plus 0.5. So 4.09%.

That gives an interest cost of £30,675 over the 3 years. So it would actually have been slighlty more expensive on a BOE +0.5%. Though every month that goes on now, the average comes down of course.

Ok, when I was refering to interest cost, I was just talking about the mortgage interest rate, so base + whatever the margin is.

You are adding in £17k for future savings in interest rates, interesting point. Personally and a different discussion, I won't take a tracker at the start of a mortgage. I would look to fix the first 10-15 years and so would never benefit from this. Yes you can then argue i'm ignoring that saving, but it is a saving I personally would never have had. I'm not sure what product most people go for? Also, there are plenty of economic scenarios that end with very high interest rates, so this may never materialise. Anyway, add this in too and we end up with:

Rental cost £39.2k -House Price saving £16k + loss on future int rates £17k. Total £41.2k

Cost of interest £30.6k.

Yes we come out with buying is cheaper, but I would argue we have taken the very extreme end of the example. Only a 6.4% drop and included £17k of savings that may never materialise and would not have applied to myself.

Even if this were true for me (which I think if I pluged in local numbers it would not be), I would still be happy. Lost no more than £10k by not buying. The prospect of sitting on a large mortgage today attached to anything other than a long term fix would scare the crap out of me. I can now sit and wait and watch what I think will likely be a car crash over the next 6 months, with a load of savings in the bank, ready to go. If I'm wrong, I have lost this £10k (worst case, I actually think with my numbers I'm in profit atm) plus whatever house prices move by over the next year.

I'm going to get some lunch now.

Laters

silvercar

Mr.Brown wrote: »

Where there is surely no doubt however, is in the get rich quick BTL or renovating fad that occupied a lot of people during the mid 2000 period. This is the phase that priced normal people out of houses, and built a mountain of debt which wrecked the world economies. That time is over and that is where the remainder of the crash has yet to come from. Distressed sales and bankruptcies partly, but more an end of the love affair with 'easy' money and debt.

A lot of the people that dabbled in BTL were professionals, GPS and solicitors, who have plenty of cash available to get them out of difficulties. Remember also that a lot were financed on low bast rate trackers or by the residential mortgages on the owners main home. Now that some lenders are deciding that professionals doing BTL are a safer bet than FTBs, I expect further good mortgage deals to appear. I don't think you can look to the BTL market for a further crash.

Procrastinator333

Figured I would just do that calc again for my own circumstance -

Using a rental yield of 5.3% (I'm renting at £1,100 in a £250k property).

Rent costs for 3 years - £39.2k

Using 12 % as the house price drop (bit lower than Nationwide and Halifax drop from peak as the timeframe starts slightly earlier)

I then buy the property @ £220k. and have £220k of mortgage remaining.

Had I bought 3 years ago on interest only at an average rate of 4.1% (seems quite low for a ftb who would have started with zero mortgage) I would have paid £30.7k in interest. That is £8.5k less than the rent so I could have used that £8.5k to pay off the mortgage, leaving me with a remaining mortgage balance of £241.5k.

So :beer: to me for not buying yet.



I have therefore saved £21.5k by not buying :beer: This £21k is not realised and sits in an imaginery world at the moment, and maybe by the time I buy it will all be gone. But right now, after 3 years I have done the right thing. It would be higher had we bought a year ago, but i'm not sure the current levels won't be undone by the decisions made by whichever party wins the next election.

Oh, and I forgot to mention the boiler packed in while we were living here, don't know exactly how much, but the LL said it was about 2 months rent to fix. So more of a saving :beer:

Jonbvn

Procrastinator333 wrote: »

@jonbvn - Agree, the maths has clearly worked the other way for you and that creates a strong argument for buying, but again, being the bean counter, I would say your house has lost 15% of it's value or whatever the number is, therefore with hindsight you would actually have a smaller mortgage today if you had rented and bought now instead. I appreciate that is a bit of an unfair argument. The price is not the be all and end all for most and that hindsight is a wonderful thing. Plus here I am saying i'm not buying and by the time I do maybe I will have missed the boat completely.

In our area, we are looking at 5% or less. However, this is a moot point. The key for us would be that if we were buying today or within the next few months, our mortgage interest rate would be 4 or 5 times what it is at present, meaning any net gain would quickly be eroded. Therefore, when will be the right time, given that HPI is inevitable (IMHO) in the longer term?

I would concur that buying a house is not just a financial matter, but also an emotional one, particularly if you are female.;) In our case, the OH's nesting instinct was the overriding issue. Financially, this proved fortuitous.

silvercar

I have therefore saved £21.5k by not buying

Seems that the only thing you haven't allowed for is the difference in mortgage rates. In 2006 I got 5% fixed for 2 years and then base rate + 0.75%. Nowadays you are looking at base rate + 2-3%. So over 25 years your mortgage will cost you a lot more. (I accept that your figures won't be indentical as I had a lower LTV than I imagine yours is as FTB).

This £21k is not realised and sits in an imaginery world at the moment, and maybe by the time I buy it will all be gone.

A very honest point. If you had the mortgage, you would have made sure you paid it I guess. So you have lived a more expensive lifestyle as a result of renting.

I'm sure the same is true of most people, if the mortgage needs paying it is paid, but if the money is burning a hole in your pocket it gets spent, or at least some of it does, on non-essentials.

The same applies to those benefitting from incredibly low interest rates. Had my rate been 5%, the mortgage would have been paid each month. At the 1.25% it has been most of this year, theory was to put the difference in the offset and reduce the outstanding mortgage (but with the power to get the savings back if needed). In practice some of it went on an extra family holiday.

Procrastinator333

@silver / jonbvn: Regarding the difference in interest rates, I used the base +0.5% that Hamish mentioned as I was assuming he would quote the best available deal from that time. Hence why I took average BOE + 0.5% As I mentioned somewhere up in my endless drivel, that is obviously a winner now and in time, probably not that much time, it could well erode any gains at present. Then again, there are plenty of scenarios that end in higher interest rates. But I also pointed out personally I would not go for a tracker at the start of a mortgage.


@ jonbvn: Apologies, I shouldn't really be applying my logic or circumstance to others, not my place. I'm glad it has worked out for you. Though I do apologise that I am cheering the other way to you - crash crash crash! :T

The thrust of my thread is that a) I have saved money by not buying, up to this point, and b) I think it is a mistake to buy before the election and the first few months.

Anyway, i'm guessing Hamish isn't done with me yet... Ready for round 2 when you are!

Pagg

Renters will never win, sadly (because it means house prices will rise and put a lot of people into a permanent renting situation). After the election, whoever wins, interest rates will rise. They have to in order to give the Government better returns on their loans. Then, mortgages are more expensive, including those of your BTL landlord, who'll dutifully pass on the increase to you as rent rises. Meanwhile you're further away than ever from paying off a mortgage on your own house.

Mr.Brown_4

silvercar wrote: »

A lot of the people that dabbled in BTL were professionals, GPS and solicitors, who have plenty of cash available to get them out of difficulties. Remember also that a lot were financed on low bast rate trackers or by the residential mortgages on the owners main home. Now that some lenders are deciding that professionals doing BTL are a safer bet than FTBs, I expect further good mortgage deals to appear. I don't think you can look to the BTL market for a further crash.

No mate. A lot were Mum and Dad investors, and it became their main topic of conversation in the school playground. People who could only just afford their own mortgage were able to borrow and borrow, and leverage themselves silly with several BTL properties. This funded holidays, 4 x 4's and general money splashing about with their gains. All the while braying about things like "this is our pension" and "we're doing it for the kids".

Soon to be yesterday's ostrich farms mate. I can't remember when I last heard someone talking about getting into BTL - that's why that particular nonsense is so over.

treliac

Mr.Brown wrote: »

No mate. A lot were Mum and Dad investors, and it became their main topic of conversation in the school playground. People who could only just afford their own mortgage were able to borrow and borrow, and leverage themselves silly with several BTL properties. This funded holidays, 4 x 4's and general money splashing about with their gains. All the while braying about things like "this is our pension" and "we're doing it for the kids".

Soon to be yesterday's ostrich farms mate. I can't remember when I last heard someone talking about getting into BTL - that's why that particular nonsense is so over.

I know people who got into it, expecting to be able to live on the proceeds. They are now all back in paid jobs.

Mr.Brown_4

treliac wrote: »

I know people who got into it, expecting to be able to live on the proceeds. They are now all back in paid jobs.

The few years of BTL madness were one of those strange bubbles that happen every now and again. Perfectly sane normal people, without a lot of money to spare, were dazzled by HPI at 20% and the blurb from Krusty, InsidfeTrack, etc. So Mum, or Dad, says "let's get into BTL" and the partner agrees.

Imagine other scenarios.

"Let's get into classic cars"
"Let's get into fine wines"
"Ostriches"
"Tulips"
etc.

What was so extraordinary about this bubble, was the number of people who would not dream of, er, investing, in anything - and they wouldn't have the cash to do it anyway. It is bonkers to borrow to invest. Surely it is doubly bonkers to leverage borrow to invest.

We shall see.