Grrrr If I hear 'renting is throwing money away' from another interest only holder

whambamboo

azbij wrote:

one word - "gearing".

don't diss ownership (whether it means house or mortgage). for 5% deposit you can enjoy 20 times the rate of increase in the value of the house that you don't own.

and also 20* the rate of fall :eek:

anniecave

Kelinik wrote:

I was about to say that value of anything is only what someone is prepared to pay for it.

yeah and at the moment people are prepared to pay high prices to get expensive homes by taking out huge mortgages because everyone wants to get on the housing ladder or people are buying to let.

Once interest rates have gone up a bit, a few people have had their houses repossessed because they can't afford to pay their mortgages, people stop thinking that they MUST get on the housing ladder NOW, and some of the people who have bought to let realise that letting doesn't get that much return, then house prices will come back down (or will stop going up by such silly amounts). It's just simple economics.

Viking_Man

one word - "gearing".

Yes this is a critical point that Martin and many other posters here have missed. The benefit from the gearing effect if your house rises in price is immense, and this is why housing has proved to be such a spectacular investment over the last few years. Many here seem surprised that rents are lower than the interest on a mortgage but this is in fact what you would expect, because the mortgage payer is also benefitting from his or her house rising in price, whereas the renter is not. Renting short-term makes sense, and could be a bet on house prices falling short term. But in the long term it will always be better to buy.

michaels

Hmm - so it is recommended to take a hugely leveraged bet on one class of asset (housing) but try suggesting that the average investor should use options to take a hugely levereaged bet on another class of assets like currency, shares or commodities - you'd be hauled before the FSA quicker than you can say 'mis-selling'. Why do people think this asset is special, it is just as volatile as the other assets and the transaction costs (legal, agents, stamp duty etc) are much higher...what difference does it make if you make 100k by risking 10k deposit on a house rather than on gold futures - either way it is still 100k to pass on to your children.

And if you try to claim that housing is less risky with higher returns then it sound like there is something very wrong with the city - after all if housing were a one way sure fire winner surely all those hedge funds would just be buying houses rather than spending time mucking about with all those complicated models and strategies...

tomstickland

Interest only mortgages are a perfectly legitimate way to buy and own a home too - as the price of the house increases over time your friend will own more and more percentage-wise, even if he doesn't pay off a penny of the original mortgage.

What if it falls in a time period and circumstances change so that they can no longer afford the IO payments?

gm_lewis

There is a one point missed that makes 100% mortgage an advantage rather than renting. With house prices rising above the mortgage capabilities of many first time buyers, having a 100% mortgage atleast freezes the purchase price of the house. Then in a few years time when a repayment mortgage is affordable it can be changed.

ollyshaw

gm_lewis wrote:

There is a one point missed that makes 100% mortgage an advantage rather than renting. With house prices rising above the mortgage capabilities of many first time buyers, having a 100% mortgage atleast freezes the purchase price of the house. Then in a few years time when a repayment mortgage is affordable it can be changed.

Yeah they can be frozen and then go down!

Olly

gm_lewis

I meant interest only not 100% mortgage. I have 100% on the brain after reading the X factor conrestants blog.

Regarding Ollyshaw's reply, I've only ever aware of house prices dropping once in the last 15 years. This was only because the government fiddled the interest rates to stay in the ERM. Now thankfully the interest rate is controlled independantly. If interest rates go up it won't be so dramatic as then. If a house is bought as a home for the long term, the value will have increased even with the price drop in 1991. You can't by a house now for less than it cost in the late 1980's can you?

ollyshaw

No, but then it did take the best part of a decade for houses to get back to where they once were. If you are so confident in constant rises then get as many properties as you can before you "miss the boat".

Olly

roswell

ollyshaw wrote:

before you "miss the boat".

Olly

Very apt the current market is just like the Titanic ..... unsinkable according to the experts (John who sits at the end of the bar every day and Joe .. last name public)

I remember 1999 .. If yopu dont have shares in IBM / Microsoft / Tech markets you will be in this dead end job for life, Im worth X .. bobs worth Y, John (he worked in those days) is worth Z,

Amazing how quickly they stopped recomending shares in 2001 ...