How will the gridock be broken?

Graham_Devon

Blacklight wrote: »

I think you've confused yourself Graham.

Self-certification mortgages accounted for almost half of all new mortgages advanced between 2007 and the first quarter of 2010, according to the FSA.

Please. Save your own embarrasment, and go and read the thread again.

HAMISH_MCTAVISH

neverdespairgirl wrote: »

Why would you be delighted?

Because at some point in the next decade or two, I'll be downsizing. So like any property owner at the top of the ladder, who no longer needs to upsize, price gains do nothing but benefit me.

neverdespairgirl

Blacklight wrote: »

It'll come. Chelsea are already offering loans more than 100%. As posted in the EA thread today, banks are already giving 90% loans without a problem.

One difference, however, is that although you can get a mortgage with a 10% deposit, you'll be paying way more in interest than if you have a 40% deposit.

HAMISH_MCTAVISH

neverdespairgirl wrote: »

One difference, however, is that although you can get a mortgage with a 10% deposit, you'll be paying way more in interest than if you have a 40% deposit.

But as it takes 5 to 10 years for most people to save a 40% deposit, they also pay far more in lifetime housing costs by paying many more years of rent than they need to.

There's always a balance to be struck.

Those who chose not to "risk" buying with a high LTV in 2005/6/7/8 are now missing out on "once-in-a-lifetime" record low interest rates and paying far more in rent than in most cases they would have on one of the old mortgage deals.

wherediditallgothen

HAMISH_MCTAVISH wrote: »

But as it takes 5 to 10 years for most people to save a 40% deposit, they also pay far more in lifetime housing costs by paying many more years of rent than they need to.

There's always a balance to be struck.

Those who chose not to "risk" buying with a high LTV in 2005/6/7/8 are now missing out on "once-in-a-lifetime" record low interest rates and paying far more in rent than in most cases they would have on one of the old mortgage deals.

But on the flipside, there's no danger of them being in NE should house prices tumble drastically.

HAMISH_MCTAVISH

wherediditallgothen wrote: »

But on the flipside, there's no danger of them being in NE should house prices tumble drastically.

True, but negative equity is pretty much irrelevant to the 95% of people who don't need to sell a house during the few years it may be in N.E., so long as they have a decent mortgage deal and don't need to re-mortgage on poor terms.

And people taking a longer term view of property ownership is not such a bad thing.

neverdespairgirl

HAMISH_MCTAVISH wrote: »

But as it takes 5 to 10 years for most people to save a 40% deposit, they also pay far more in lifetime housing costs by paying many more years of rent than they need to.

That completely depends on (1) what rents are in a particular place compared with mortgage costs; (2) how those sums apply at different deposit rates; (3) the personal circumstances of a person / couple / family.

To show my working:

A house costs £500k. Couple have deposit of £50k (10%) and good credit rating.

They can fix for 5 years @ 5.95% for a 25 year repayment best buy at the moment.

Cost - £2,919.57 a month, of which £2,231.25 is interest and £6,88.32 is capital

The couple could rent the same house in my neck of the woods for an equivalent of a 3.1% gross yield.

Cost - £1,291.67 a month. So they can stick £1,627.90 a month in their savings account.

In a year's time, should they rent, they'll have an extra £19,534.80 in their deposit account.

HAMISH_MCTAVISH

neverdespairgirl wrote: »

That completely depends on (1) what rents are in a particular place compared with mortgage costs; (2) how those sums apply at different deposit rates; (3) the personal circumstances of a person / couple / family.

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.

A house costs £500k. Couple have deposit of £50k (10%) and good credit rating.

They can fix for 5 years @ 5.95% for a 25 year repayment best buy at the moment.

Cost - £2,919.57 a month, of which £2,231.25 is interest and £6,88.32 is capital

The couple could rent the same house in my neck of the woods for an equivalent of a 3.1% gross yield.

Cost - £1,291.67 a month. So they can stick £1,627.90 a month in their savings account.

In a year's time, should they rent, they'll have an extra £19,534.80 in their deposit account.

The above is an extreme example...... In very, very few areas of the UK would a FTB be looking at a 500K house or rental yields of 3.1%.

"Round my way" the average FTB would be looking at a house of 150K or so, and yields on such a property would be closer to 7% than 3%. Up here, you start losing quite significant sums of money from the day you sign the rental contract.

vivatifosi

HAMISH_MCTAVISH wrote: »

But as it takes 5 to 10 years for most people to save a 40% deposit, they also pay far more in lifetime housing costs by paying many more years of rent than they need to.

There's always a balance to be struck.

Those who chose not to "risk" buying with a high LTV in 2005/6/7/8 are now missing out on "once-in-a-lifetime" record low interest rates and paying far more in rent than in most cases they would have on one of the old mortgage deals.

I thought I'd test your theory Hamish on the houses where I live. I can do that because one is currently available for sale and another for rent. I'm not an ftb and I wouldn't say my house is a typical ftb one, however it would be affordable to ftb professional couple. Its a small 3 bed semi somewhere in commuting distance to London.

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.

HAMISH_MCTAVISH

vivatifosi wrote: »

Its a small 3 bed semi somewhere in commuting distance to London.

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.

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.