How will the gridock be broken?

Thrugelmir

vivatifosi wrote: »

I was amazed. Rents have gone up quite substantially here while the cost to buy has gone down. However allowing for a 10% deposit, it is currently just £65 per month more to buy on a 25 year repayment tracker than it is to rent.

Then there's still a further adjustment to go. As commercial logic dictates that a mortgage should be cheaper than renting.

HAMISH_MCTAVISH

Thrugelmir wrote: »

Then there's still a further adjustment to go. As commercial logic dictates that a mortgage should be cheaper than renting.

And with rents rising as rapidly as they are, that adjustment will be complete very shortly.

Malcolm.

Thrugelmir wrote: »

Then there's still a further adjustment to go. As commercial logic dictates that a mortgage should be cheaper than renting.

Investment logic dictates that the mortgage vs renting comparison depends upon expectation of future return.

neverdespairgirl

HAMISH_MCTAVISH wrote: »

At the extremes of the scale, there will obviously be some areas where renting may be cheaper over the short term, and other areas where renting is terminally stupid for even a few months.

If you are going to be living in a place for a short time, say on a 6 month contract and then go home, renting wouldn't be stupid at all.

Shakethedisease

And with rents rising as rapidly as they are, that adjustment will be complete very shortly.

Sure it will. When the government is hell bent on lowering them and the welfare bill. You're still living in the past a la 3 years ago.

Things won't be the same a year from now. There are too many changes to take place first.

Waves of homeless families will not happen in the UK, putting aside the political implications to a fragile coalition from such an obvious public relations disaster, government ultimately has a legal obligation to house those people in such an event, and as I've frequently noted, putting them in B&B is more expensive than keeping them in a house. A solution will be found.

And any solution found in order to avert a wave of homeless, will affect house prices. The banks can't keep them in houses not meeting even interest payments ( and BTW the 115,000 I quoted are those which will be affected, HALF the 215,000 cases currently on SMI). Otherwise we'd all start doing it and questioning why we bother paying our mortgages at all.

And they can't do anything other than legislation in order to force landlords to accept rents at LHA levels.

What's the solution then ? One that won't affect house prices or rents ? When there will be more than a few families papped onto the street with no means of doing either. And no means of housing them privately (currently) or in social housing ?

You seem very dismissive of this and it's possible impacts politically and in swaying government priorities over the next few years. Perferring instead to concentrate on how things 'were' ( and endless quotes, averages and figs based on how things stand 'currently'). Yet it's about to hit a fair few in the Uk on lower incomes, and on benefits. Try looking forward instead of backwards. It's not 2007 anymore.. none of the government polices, cuts or job losses regarding reducing the deficit have even begin to hit yet.

It's all changing Hamish. And you're starting to look like a bit of a dinosaur. A knowledgeable one.. but still firmly rooted in the past and unwilling to see what's changing around us.

HAMISH_MCTAVISH

Shakethedisease wrote: »

It's all changing Hamish. And you're starting to look like a bit of a dinosaur. A knowledgeable one.. but still firmly rooted in the past and unwilling to see what's changing around us.

The more things change, the more they stay the same.....

And it takes a special kind of naivety, peculiar to the young, to believe that it really is "different this time".

“There will be no return to the way it was, because boom and bust in housing cannot be allowed to happen again.” - Grant Shapps, Conservative Housing Minister, 2010

"I will not allow house prices to get out of control and put at risk the sustainability of the recovery. Under this Government, Britain will not return to the boom and bust of the past." - Gordon Brown, Labour Chancellor, 1997

myhouse_2

HAMISH_MCTAVISH wrote: »

So the mortgage interest component in your example is significantly cheaper than rent, yes?

In which case it is cheaper to buy than rent even in the immediate term, and rents are still rising rapidly.

And, being pedantic, the cost to buy has not neccessarily gone down at all.....

The price of the house may have gone down, but the interest payable above base rate has gone up. The average bank margin above base in 2007 was around 1%, today it's closer to 3%, and for FTB's more like 4%. So a buyer in 2007 would still be better off than a buyer today, based on the average house price fall since then compared to the average tracker/SVR mortgage deal differential. Fixed rates not so much though.

Just a few thoughts that spring to mind:
1. Although I'd accept that HPI usually occurs over 5 years, don't confuse HPI with inflation either - if inflation is higher than HPI then house prices have gone down in real terms. I'd be mightily surprised if HPI beats inflation over the next 5 years.
2. During steep market corrections (up or down), prices usually go beyond their real value - we should not be surprised to see house prices going down to below their genuine market value if people panic (admittedly with low IRs, there's not much panic at present but that could change very swiftly).
3. Your example requires the buyer to have a minimum 10% value. Many people are struggling to get that and in most cases more than 10% is required.
4. There are good indications that prices are falling at a rate higher than people's equivalent rent and the upcoming cuts are not going to contribute to a recover in the housing market. FTBs and those trading up might be expected to not buy in these conditions no matter how good the rent:buy ratio is.

myhouse_2

So to answer the original question, if we assume (and it is a safe assumption) that sales levels will return to normal fairly soon (people NEED to move) either prices have to fall to meet the pent up but priced out demand. Or the priced out people need to earn/borrow more money. For me, there's only one outcome. How long will it take? Don't know - IRs being low definitely extend it out - but it will be sooner rather than later.

Procrastinator333

HAMISH_MCTAVISH wrote: »

It does indeed.

My statement was based on national averages.

At the extremes of the scale, there will obviously be some areas where renting may be cheaper over the short term, and other areas where renting is terminally stupid for even a few months.

To show my working:

The average house price is around £165,000. (nationwide et al)

The average rent is around £685.....

(LSL rent index http://www.loans4.co.uk/loan_news/news.php?item=931-Average_rents_in_UK_soar-931 )

.....which equates to an average yield of right around 5%.

The Post Office is currently offering a 90% LTV mortgage for FTB's (tracker) at 4.99%, and Natwest is offering a 5 year fixed at 5.29%.

So for a FTB with a 10% deposit, buying the average house, and paying the average rent, the interest component of buying is immediately cheaper than renting whether they choose a tracker or fixed rate mortgage.

House price = £165,000

Rent = £685

Mortgage of £148,500 (165K minus 10% deposit)

@ 5.29% fixed for 5 years = £903 per month, of which £654 is interest and £249 is capital.

At the end of 5 years they will have paid down the mortgage by £14,940 (or roughly 10%).

They will also have inflation proofed themselves against both HPI (which over 5 years is pretty much inevitable) and Rent Inflation, which is currently soaring at around 4% per year.

And of course that is just with a 10% deposit....... With a 15% or greater deposit the case for buying, based on the averages, becomes even stronger.

Now now, that is a little disingenuous (big word!! ) ).

£903 (mortgage cost) less £685 (rent cost) gives £218 per month. The renter saves this. Leaving a larger deposit available when they do purchase, another 13,080.

Then on top of that they probably made say 3% after tax on their deposit, leaving them with £2,475. Not even counting the interest they make from their monthly saving.

That plus the above saving is £15,555. So they are £610 better of by renting.

This just shows the same point - If prices are flat and interest % = interest rate on mortgage, it makes no difference renting or buying.

After this point, you can layer in all the complication you want. But imo, prices are going to be flat at best or have small nominal falls over the next year or 2. That combined with the fat I'm renting a place smaller than we will eventually buy will combine to give me significantly more equity at the point of purchase than if we had done today. Of course that is dependant on my assumption about house prices being correct. Others may think hpi is on the way, in which case the same logic should lead them to buy today.



I also disagree with this notion that rents are rising. I'm not involved beyond my own property, but I track my local area. 2 years, no rent increases on our property and if anything, we could now move to a better property for less money. But just like the above, this may well be very different for different areas.

abaxas

Council tax rebanding based on asking price would sort lots of this out!