another big price drop?

twirlypinky

Hi,

My boyfriend and i are currently living in his tiny one bed house, overpaying his interest only mortgage to create some equity for a deposit for moving to a bigger house as soon as we can.

I'm getting a little worried that house prices are going to take another nose-dive and we'll lose that equity we've saved. Yes, we'll have reduced the chance of negative equity, but it's quite a depressing thought.

Now i know that no one can really guess what's going to happen, but i'm getting nervous. Would anyone really consider selling now and renting while we save for a deposit, so if prices do fall, we're a) ready to go and b) might actually have a deposit.

Or would you say that's a silly idea and we should stay put while interest rates are still so low? Especially since while we're here we're able to pay more off the mortgage in extra payments per month, than we'd be able to save whilst paying rent:

Rental payments probably about £800 pcm
Current interest payments about £250 pcm

Thanks in advance! Cx

Niv

So your interest payments are £250 pm and you think that renting for £800pm will help you save money? Personally I would stay where I was and save as much as i could (start by the difference between the interest and rent so £550pm). On a side note but still related although I believe house prices may decrease in time they will increase again and in any case I do not believe a 'nose dive' is on the cards. Its my opinion I can not back this up with facts (but then again no-one can) :-)

sonastin

A nose-dive would require enough sellers to a) be in a position where they can lower the price on their property significantly (i.e. no negative equity) and b) be in a position where they had to move no matter what and accept prices way below what they hope for instead of waiting it out. If there was a large enough pool of sellers in that position, it would probably drive the market down sharply.

Instead what you seem to have at the moment is a lot of sellers hanging on to the prices they think they can achieve, either because they don't need to move immediately or because they can't afford to take anything less. And a few buyers willing to buy at those prices and plenty of would-be-buyers thinking they ought to be able to get these same houses for less so hanging on for the market to drop.

Its a bit of a stalemate at the moment and no one can say what is going to push things one way or the other.

Its probably not worth joining the ranks of the sellers just now, unless you really have to move into something bigger now. It will only add to the pressure pushing prices down which unless you manage to sell quickly, isn't going to help you get your deposit.

poppysarah

Erm
What's the point of the IO mortgage?

How are you repaying it?

jeferey

I wouldn't bother moving. The costs of moving will probably be quite high and then how will you know when to buy again - where will the bottom be (if indeed the market goes down)?
If the market does drop, there's a good chance the property you are in now will drop less in monetary terms than the one you are aspiring to as I'm guessing it will be worth more.

How much extra are you paying over the interest payments?
What is the interest rate you are paying?
Could you get more in a savings account?
Is the mortgage rate fixed?
Is there a penalty to leave the mortgage?
Would you get a better deal than the one you are on now if you were a first time buyer?

There are lots of questions to ask yourself

twirlypinky

The IO mortgage was one that my boyfriend got when he first bought the place (i wasn't on the scene then) because it was all he could afford at the time.

We are currently overpaying this by rather a lot of money a month, which is reducing the capital - so in affect, we've got a repayment mortgage really, on a very low rate.

At the moment we have no choice but to stay on the Halifax variable rate because my bf's fixed rate ended and when we went to see the halfiax they really didn't want to give us another fixed rate because the house has lost all, if not more, of the equity that his original deposit provided.

We're overpaying the mortgage rather than sticking the money into savings because a) we wouldn't earn much more than the interest rate we're paying on the mortgage and b) we're reducing the interest payment at the same time.

My worry is that the house price will fall and the equity we're trying to pump in will disappear.

I guess you've confirmed what i already knew really, that we should maintain the status quo.

I will confess that I'm a little gutted because i've really got fed up with living in chez tiny house, and would've liked to spread out a little, even if it had been rented really. Never mind, it could be a lot worse, we could have no home at all!

thanks all x

lincroft1710

The market here is still buoyant, houses selling quickly and prices appear to be still on the increase.

Unless there is a desperate necessity to move, stay put. Think of the house as cosy rather than cramped, economical to run and easy to clean.

undetterred

poppysarah wrote: »

Erm
What's the point of the IO mortgage?

How are you repaying it?

PMSL the busybody strikes

poppysarah

undetterred wrote: »

PMSL the busybody strikes

It was a genuine question...

How *do* you overpay an interest only?

tux900

poppysarah wrote: »

It was a genuine question...

How *do* you overpay an interest only?

As the OP explained.

With an interest-only mortgage you are only obligated to pay the interest that the loan attracts every month, rather than the interest and a portion of the loan as with a repayment mortgage.

If you overpay on an interest-only mortgage then anything over and above the interest payment comes off the remaining loan. As the OP states this thus reduces future interest payments (due to the decrease in loan amount) and also gives some flexibility as to how much you pay off every month.

If you don't make any overpayments then at the end of the loan term whilst you've paid all the interest for the loan you are still indebted to pay the actual loan back.

Mathew

poppysarah

So why isn't it a repayment mortgage then?