Why as a homeowner trading up are property rises good for me

the_flying_pig

HAMISH_MCTAVISH wrote: »

[blah blah blah]... I'm merely noting the facts. You can argue about it all you like.

well, not quite.

you were, not for the first time, drawing some very misleading inferences from "the facts".

someone made a true statement, namely:

"As prices increase they rise in proportion. So the gap between a cheaper and a more expensive house increases"

a sensible, non-misleading, response to this might perhaps have been along the lines of: "as a proposition that's true in general, of course, but certain stats I've seen suggested that, in 2009, the rule might not have held, because of particularly high inflation on FTB pwoperdee... so whilst I'd expect the rule to to be true going forwards, it may not have been in 2009".

but you didn't say anything of the sort. you replied in a way that [risibly] implied that the entire proposition was wrong. your reply started off with a single sentence, namely "False." thus kicking off a very, very, low standard of debate.

neverdespairgirl

HAMISH_MCTAVISH wrote: »

And those in negative equity, and anyone looking to upsize to only a moderately more expensive place with equity of less than 40% where they won't get a new mortgage at comparable rates, and anyone looking to take a sideways step with less than 40% equity and a non-portable mortgage, and anyone whose next move will be to leave an inheritance, etc, etc, etc.

I think that's a slight exaggeration - most of the best mortgage rates seem to be for 65% or 70& LTV. There are some 60% and 50% LTV deals, but 40% deposit or equity isn't required for a decent rate.

HAMISH_MCTAVISH

neverdespairgirl wrote: »

I think that's a slight exaggeration - most of the best mortgage rates seem to be for 65% or 70& LTV. There are some 60% and 50% LTV deals, but 40% deposit or equity isn't required for a decent rate.

The point being that for every fall in prices, large numbers of borrowers will be tipped into a more expensive LTV bracket for re-mortgaging.

All the way down to sub 50% LTV.

And with every rise in prices, large numbers of borrowers will rise into a cheaper bracket for re-mortgaging.

Thrugelmir

neverdespairgirl wrote: »

but 40% deposit or equity isn't required for a decent rate.

Banks want to attract new borrowers not people remortgaging.The business isn't so profitable once the LTV diminishes. Hence why product fees are so high on fixed rate term products as well. In essence to discourage people on low LTV's from switching.

Graham_Devon

HAMISH_MCTAVISH wrote: »

The point being that for every fall in prices, large numbers of borrowers will be tipped into a more expensive LTV bracket for re-mortgaging.

All the way down to sub 50% LTV.

And with every rise in prices, large numbers of borrowers will rise into a cheaper bracket for re-mortgaging.

Right lets put this to bed for once and for all.

Lets say Mary has 100k equity in her home.

House prices fall 20% and Mary now has 80k equity in her home, which has put her into a 70% LTV bracket instead of the 60% bracket she did fall into.

Mary wants to move. The house she was looking at, was priced at 200K, but has now fallen 20% to 160k.

Before house prices fell, Mary would have needed a mortgage for 100k. She would have got a slightly better rate at 4.3% (for instance).

The mortgage would have cost her, in total, at the same rate throughout £165,000.

However, prices have fallen 20%, so Mary now needs an 80k mortgage. Trouble is, the rate is 4.9%. So it's more expensive for her now (according to you).

The mortgage now, on 80k at 4.9%, at the same rate throughout the mortgage will cost her £140,484.

For Mary to actually lose out by falling prices, the rate differential for the lower LTV would have to be a whopping 2.3% higher.

Can I suggest this theory you are using is quite far fetched?

System

My situation if I was to upsize to a 3 bed detached next year, I did these sums recently.

Currently have 10k equity (at a guess) in my place and 14k savings.

I want a place that costs 170k, so I need a 34k deposit. I need to save 10k in a year (mortgage deal expires). I might be able to do that at a push. Would leave me with a 136000 mortgage, at 5% that's £730

If prices fell 20%, I'd need about 10k to buy myself out of NE, and then I'd need a 27k deposit, and I'd be left with a 109k mortgage at £585

I would genuinely rather pay £730 now (which is nothing, really) than wait 3 years til I can move after saving 10k a year and being a hermit who can't spend any money in the process.

I should imagine a certain nutcase would call me a debt junkie now, but that's realistic, and that's the choice a lot of people would prefer to take.

I think what's happening now is the best thing for me as an upsizer, prices relatively static.

HAMISH_MCTAVISH

Graham_Devon wrote: »

For Mary to actually lose out by falling prices, the rate differential for the lower LTV would have to be a whopping 2.3% higher.

Which for most that bought in the last 8 years, is entirely likely.

Can I suggest this theory you are using is quite far fetched?

Not nearly as far fetched as you thinking prices will fall by 20% from here.

Which sort of invalidates your entire argument....

Not to mention the vast majority of people aren't planning to move, so for those in the 5 million or so households with less than 50% LTV mortgages, falls are bad and rises are good. In general terms.

Graham_Devon

Joeskeppi wrote: »

I would genuinely rather pay £730 now (which is nothing, really) than wait 3 years til I can move after saving 10k a year and being a hermit who can't spend any money in the process.

If prices stay static, you'll still have to wait 2 years saving that 10k to hit 34k savings.

You've been perfectly honest, and would rather pay £145 extra each and every monhth for the sake of one year. That's perfectly reasonable if thats what you would wish to do....but I don't think it's a choice of a lot of people, as you state, especially considering if rates move to 7% on your mortgage will be £972, compared to £779, i.e just shy of £200 higher each month for the privilege of moving just one year quicker.

the_flying_pig

Graham_Devon wrote: »

Right lets put this to bed for once and for all.

Lets say Mary has 100k equity in her home.

House prices fall 20% and Mary now has 80k equity in her home, which has put her into a 70% LTV bracket instead of the 60% bracket she did fall into.

Mary wants to move. The house she was looking at, was priced at 200K, but has now fallen 20% to 160k.

Before house prices fell, Mary would have needed a mortgage for 100k. She would have got a slightly better rate at 4.3% (for instance).

The mortgage would have cost her, in total, at the same rate throughout £165,000.

However, prices have fallen 20%, so Mary now needs an 80k mortgage. Trouble is, the rate is 4.9%. So it's more expensive for her now (according to you).

The mortgage now, on 80k at 4.9%, at the same rate throughout the mortgage will cost her £140,484.

For Mary to actually lose out by falling prices, the rate differential for the lower LTV would have to be a whopping 2.3% higher.

Can I suggest this theory you are using is quite far fetched?

nah, you've got it wrong, m8. that's not how Hamish argues.

if there's one thing that supports your argument, focus on that, gloss over the rest. none of this unpicking lark.

System

Graham_Devon wrote: »

If prices stay static, you'll still have to wait 2 years saving that 10k to hit 34k savings.

I can save 10k in a year if I do nothing else.

Graham_Devon wrote: »

You've been perfectly honest, and would rather pay £145 extra each and every monhth for the sake of one year. That's perfectly reasonable if thats what you would wish to do....but I don't think it's a choice of a lot of people, as you state, especially considering if rates move to 7% on your mortgage will be £972, compared to £779, i.e just shy of £200 higher each month for the privilege of moving just one year quicker.

I think it's more like 3 years.

I need to save 10k in the current situation.

In the price drop situation I need to save 24k. If I can save 10k in one year, I certainly couldnt save 24k in 2.4 years, I'd go mental.