anyone else want a CRASH...?

cwcw

According to this article dated September 2006 in The Times (http://property.timesonline.co.uk/article/0,,14050-2345743,00.html), the UK average monthly rent is £787. The average price of a property in the UK, as at end of Q3 2006, is £179,425. A 100% interest only mortgage on this at 5% would cost £744.60 a month. So, basing it on average figures across the whole country (still crude, but more scientific than using a skewed collection of anecdotes from people who, given the title of this thread, are more than likely to have a vested interest), renting is still more expensive than buying.

Incidentally, I stumbled across some amusing articles on the BBC website, such as this one from MAY 2002: http://news.bbc.co.uk/1/hi/business/1961628.stm

Particularly, comments like:

"As an existing landlord of 5 years standing, I cannot understand why new landlords are still buying. <snip>. The fact that 77% of Buy-to-let mortgages were taken out in the last year is alarming evidence of a bubble in it's final throes. A lot of people are going to get seriously burnt by this speculation."

And:

"I can't believe people are still jumping on the property band wagon with the prices being so high."

Sound familiar?


Now, if only buyers in May 2002 would have taken notice of them....

meanmachine_2

To cwcw- here's a savings account you might like to look at. In the first year, we offer a variable rate of 8%.

In year two the rate we offer will vary from 0% to 8%

In year 3 the savings rate will vary from -10% to 4%

In year 4 the savings rate will be anything from -15% to 0%

And I'm sorry, but you can't withdraw your money at any time. It's a bond, but with a potential negative savings rate.

Would you "invest" in that?

And yet you're trying to compare a zero risk savings account to a high risk "property" account.

See how dumb that is? A savings account won't provide a roof over your head, but it won't also take money from you, like a house can.

PoorDave

meanmachine wrote:

To cwcw- here's a savings account you might like to look at. In the first year, we offer a variable rate of 8%.

In year two the rate we offer will vary from 0% to 8%

In year 3 the savings rate will vary from -10% to 4%

In year 4 the savings rate will be anything from -15% to 0%

And I'm sorry, but you can't withdraw your money at any time. It's a bond, but with a potential negative savings rate.

Would you "invest" in that?

And yet you're trying to compare a zero risk savings account to a high risk "property" account.

See how dumb that is? A savings account won't provide a roof over your head, but it won't also take money from you, like a house can.

More like you can withdraw at any time, but what you get at that time might be less than you need it to be.

cwcw

meanmachine wrote:

To cwcw- here's a savings account you might like to look at. In the first year, we offer a variable rate of 8%.

In year two the rate we offer will vary from 0% to 8%

In year 3 the savings rate will vary from -10% to 4%

In year 4 the savings rate will be anything from -15% to 0%

And I'm sorry, but you can't withdraw your money at any time. It's a bond, but with a potential negative savings rate.

Would you "invest" in that?

And yet you're trying to compare a zero risk savings account to a high risk "property" account.

See how dumb that is? A savings account won't provide a roof over your head, but it won't also take money from you, like a house can.

I've done enough researching for one night, but I'm willing to guess, unless you can prove otherwise, that over almost any given 25 year period, property inflation over the full 25 year term has out performed total savings account interest.

Hereward

cwcw wrote:

According to this article dated September 2006 in The Times (http://property.timesonline.co.uk/article/0,,14050-2345743,00.html), the UK average monthly rent is £787. The average price of a property in the UK, as at end of Q3 2006, is £179,425. A 100% interest only mortgage on this at 5% would cost £744.60 a month. So, basing it on average figures across the whole country (still crude, but more scientific than using a skewed collection of anecdotes from people who, given the title of this thread, are more than likely to have a vested interest), renting is still more expensive than buying...

You state the average rent and property price for the UK, then use one of the more favourable mortgage rates to make a comparison between buying and selling. IIRC, the majority of people are on their lenders Standard Variable Rate (SVR), so the rate you have used is not reflective of the average buyer. Using an interest rate of 6.5% (to try and mimic a SVR) the monthly cost (over 25 years) would be £971.89 for an IO mortgage or £1,211.49 for a repayment mortgage.

You also state that IO vs. rent that renting is more expensive, but you have not included all of the hidden costs, for example Building Insurance, which would push the monthly cost up. In addition to this you would need to set up some sort of payment vehicle to ensure that the capital has been repaid at the end of the mortgage term.

cwcw

Hereward wrote:

You state the average rent and property price for the UK, then use one of the more favourable mortgage rates to make a comparison between buying and selling. IIRC, the majority of people are on their lenders Standard Variable Rate (SVR), so the rate you have used is not reflective of the average buyer. Using an interest rate of 6.5% (to try and mimic a SVR) the monthly cost (over 25 years) would be £971.89 for an IO mortgage or £1,211.49 for a repayment mortgage.

You also state that IO vs. rent that renting is more expensive, but you have not included all of the hidden costs, for example Building Insurance, which would push the monthly cost up. In addition to this you would need to set up some sort of payment vehicle to ensure that the capital has been repaid at the end of the mortgage term.

But the majority of people to which you refer aren't buying now, they've already bought, and 6.5% on their relatively small mortgages isn't so bad. But I thought we were discussing FTBs. New buyers should easily be able to get an introductory 5% or better mortgage. Some of these are fixed rates for long periods, and even after the period ends they can remortgage (and no-one can predict what the rate will be in 2, 3, 5 or 10 years time).

Interest only is used because it is the direct comparison to renting, whereby the monthly outgoing is dead money and you get nothing at the end of it (although at the end of a 25 year interest only mortgage you can sell up to pay off your mortgage and almost certainly have plenty left over, or use inheritence funds to pay off the balance which, in 25 years time, inflation should make it seem like peanuts). However, repayment mortgages are still better and safer, but only the interest element of them can be compared to renting - the repayments on capital are equivalent to putting something away in a savings account or bond each month.

You're right about the added expenses of home ownership, which would put the monthly cost up slightly more, but then you wouldn't have the stress of the possibility of being kicked out every 6 months.

Alan_M_2

I have no vested interested in there being a crash, in fact my business is very closely connected witht he construction industry so it does me no good at all really.

I also have my money invested in other mediums than property which I've explained elsewhere. I'm on the outside looking in and really don't care which way it goes as long as my business keeps operating, quite simply it won't effect me.

When rents = IO mortgage payments, even if they are +/- 10% of that figure, you really don't need to be an economist to see the figures aren't adding up.

Tomsticklands example is a perfect example of what I was saying is correct. rent = repayment mortgage +/- 10% - strong buy, there is no argument with that at all......sadly that postion no longer exists in large areas of the country.

Hereward in the post above has clearly shown that using real averages, even the goverments statistics show this exists.

All will come out in the wash, one thing I do predict is there will be an outcry against IO mortgages, they will become the new "Endowments" missold product of the decade and large numbers of bankrupt or struggling amatuers that heavily overstretched themselves will be crying foul play.

Alan_M_2

cwcw wrote:

But the majority of people to which you refer aren't buying now, they've already bought, and 6.5% on their relatively small mortgages isn't so bad. But I thought we were discussing FTBs. New buyers should easily be able to get an introductory 5% or better mortgage. Some of these are fixed rates for long periods, and even after the period ends they can remortgage (and no-one can predict what the rate will be in 2, 3, 5 or 10 years time).

Interest only is used because it is the direct comparison to renting, whereby the monthly outgoing is dead money and you get nothing at the end of it (although at the end of a 25 year interest only mortgage you can sell up to pay off your mortgage and almost certainly have plenty left over, or use inheritence funds to pay off the balance which, in 25 years time, inflation should make it seem like peanuts). However, repayment mortgages are still better and safer, but only the interest element of them can be compared to renting - the repayments on capital are equivalent to putting something away in a savings account or bond each month.

You're right about the added expenses of home ownership, which would put the monthly cost up slightly more, but then you wouldn't have the stress of the possibility of being kicked out every 6 months.

Again, I'll point out, the context of this conversation is FTBuyers considering entering the market now, so what rate someone got two years is irrelevent and a different conversation altogether, which we've already pointed out on a couple of occasions during this thread.

Right now I see no value in buying whatsoever other sentiment. Unless of course you happen to find a property that is value to buy with a repayment mortgage.

cwcw

Alan_M wrote:

Again, I'll point out, the context of this conversation is FTBuyers considering entering the market now, so what rate someone got two years is irrelevent and a different conversation altogether, which we've already pointed out on a couple of occasions during this thread.

Yes, which was my point - new buyers aren't the ones on 6.5% SVRs, unless they're stupid.

Right now I see no value in buying whatsoever other sentiment. Unless of course you happen to find a property that is value to buy with a repayment mortgage.

I believe I have (although it could all still fall through - see my thread!).

PS. I wasn't implying YOU had a vested interest, but I can certainly think of some persistent offenders on this board.

Alan_M_2

So what's the average rate for a mortgage these days then?

1/ for no deposit

2/ for a 10% deposit

3/ for whopping deposit 30%+

If base rate is 5% there can't be much available at a lot less than 6.5% surely?