Not a good time to buy

Procrastinator333

julieq wrote: »

Ermm, no. You still end up with a 25 year (say) mortgage. In the first case you pay £20K rent (say) and a 25 year mortgage. In the second case you pay a 25 year mortgage. Difference = £20K. You'd pay a lot more rent than that incidentally in HPI hotspots like the south east, where a three bed house would be north of a grand a month.

Ermm, yes. Is the world really this bad at basic maths?! Seriously, where is the beating head against a brick wall smiley??????

The scenario is based on a interest only mortgage for the buyer. So when the renter buys, they both still have the same mortgage value.

Why is it based on a repayment mortgage I hear you ask. Because any overpayment element can be save on the opposite side by the renter and used as a larger deposit.

E.g. Interest £20k over plus £5k towards repayment.

The renter pays £20k in rent and puts away the £5k as a deposit. At the end, the remaining mortgage for the buyer is £95k. The renter then buys with a £5k deposit and has the same £95k mortgage. The renter can pick a 23 yr term if that is what they want.

Yes there is a slight differential in the interest rate a renter can achieve vs the interest rate a buyer saves on the interest, but at the start of a mortgage, 85% of all payments are for interest and over the first few years the difference would be negligible.

The only loss or gain over the 4 year period is the difference in interest paid vs rent. If you would like to disagree, please do it via a worked example.

They have both had the exact same outlay and both have the exact same mortage value at the end.

Procrastinator333

chucky wrote: »

this bold bit i can understand the logic

the first part no because you've decided to take a gamble on both rates and house prices - i can't see both of them going in your favour

If rates go up for the ftb, then yes I may have introduced an additional cost from the increased interest, but if that happens, imo it wil be more than offset by house price falls that would result.

chucky

Procrastinator333 wrote: »

If rates go up for the ftb, then yes I may have introduced an additional cost from the increased interest,

no - if rates go up (which they will) you've definitely introduced an additional cost because savings aren't generating great interest...

Procrastinator333 wrote: »

but if that happens, imo it wil be more than offset by house price falls that would result.

you're playing a risky game expecting to get right two variables like house prices and interest rates. good luck with that :eek:

Procrastinator333

chucky wrote: »

no - if rates go up (which they will) you've definitely introduced an additional cost because savings aren't generating great interest...


you're playing a risky game expecting to get right two variables like house prices and interest rates. good luck with that :eek:

I agree, it is a gamble, but it would also be a gamble to buy a house. Still exposed to house prices and possibly interest rates:

If I take the variable (seems to be the consensous view) we are still exposed to interest rates. If I take the 10 year fix I would like I'm at about 5.5-6% anyway. A 2% rise in the base would imo have little effect on the 10 yr rate. If anyone has any statistics on that, would be very interested!

At the moment, imo, shifts in house prices are the biggest risk to me, be it up or down. Again, imo, I see more chance of falls than rises and so I'm content to bide my time.

EDIT - Very true on the interest not earnt, but to me, rising rates equal falling prices in houses that will more than offset any lost interest.

These are my thoughts and anyone can look at the facts, the anecdotal, their gut feel and arrive at a different result. Neither is wrong for it is opinion.

carolt

julieq wrote: »

Ermm, no. You still end up with a 25 year (say) mortgage. In the first case you pay £20K rent (say) and a 25 year mortgage. In the second case you pay a 25 year mortgage. Difference = £20K. You'd pay a lot more rent than that incidentally in HPI hotspots like the south east, where a three bed house would be north of a grand a month.

The only conditions for ending up ahead is if there are significantly higher interest rates during the 4 year initial period than rent costs (the reverse is true), OR if interest rates are significantly lower during a mortgage taken out after 4 years renting (unlikely) OR if the difference in capital value of a house in 4 years is significantly lower than now (which is a matter of opinion).

Oh come on julie, I'm beginning to despair now.

You can make the same blatant easy-peasy maths error once and we'll forgive you, but to keep making it repeatedly looks (to paraphrase Oscar Wilde) like carelessness. At best.

Re-read procrastinator's post. Then reply.

MatteH

Rochdale_Pioneers wrote: »

Two recessions bookended the 80s. The economy was seeing some fragine recovery at the end of the 70s. Thatcher made some decisions which created a deep recession - monetarism became the prevailing dogma in economic policy, the first big wave of industrial vandalism as large parts of industry were closed, and as StevieJ has mentioned some crazy tax decisions - cuts in Income tax at the top end, big increases in VAT that hit the bottom end harder.

The effect was mass unemployment concentrated heavily in former industrial areas, and large-scale civil unrest. The unrest spread to the Cabinet, with Thatcher's economics advisor Alan Walters warining that the obsession with Monetarism was prolonging and deepening the recession.





.

Ah, such a rose tinted view of the world back then, from somebody who thinks that if we still had our UK manufacturing base it would somehow be able to compete with the likes of China.

I expect we'd still be using coal from t'mines too in that world..... :rotfl:

Thatcher came after the billions from the IMF in 1976, but of course that didn't matter either did it?.

chucky

Procrastinator333 wrote: »

I agree, it is a gamble, but it would also be a gamble to buy a house. Still exposed to house prices and possibly interest rates

so you're going to make probably the biggest purchase decision of your life on a gamble trying to get two factors like interest rates and house prices right

most people would just buy a house instead of taking the gamble of saving a couple of thousand at the risk of losing out much more money. good luck with that...

silvercar

chucky wrote: »

so you're going to make probably the biggest purchase decision of your life on a gamble trying to get two factors like interest rates and house prices right

most people would just buy a house instead of taking the gamble of saving a couple of thousand at the risk of losing out much more money. good luck with that...

Why do I get the vision of someone aged 95, clutching their zimmer frame, saying they are still not sure if now is the right time?

Another downside of delaying so long is that you want to clear your mortgage by the time you are retiring. The cautious should also add a few years to that timescale in case they have a need (redundancy, children etc) to go interest only for a time. So for anyone contemplating retiring at 60, you would want to start your mortgage by 30 ideally.

Procrastinator333

It is just as much of a gamble buying a house. If prices fall, u have wasted the fall. If on a variable n rates go up, u lose too.

Buying a house is not a safety blanket, u r just exposed to different risks.

chucky

Procrastinator333 wrote: »

It is just as much of a gamble buying a house. If prices fall, u have wasted the fall. If on a variable n rates go up, u lose too.

Buying a house is not a safety blanket, u r just exposed to different risks.

you're depending on a lot of "if" scenarios there - gambling with the biggest investment/purchase you're ever likely to make is a fools game...