Home Equity increases by 2.7% in 2011

RenovationMan

shortchanged wrote: »

Nasty macaque. Renoman's house price is resilient to price drops.

*sigh*

I don't know how many times I have to say this, but it seems the same people are just a bit too simple to understand. It's my failing, I've obviously spoken as though you're grown ups and not three year olds.

I'll try again. Are we all sitting comfortably? Then I'll begin.

Once upon a time a person wanted to buy a house to live in for himself and his family. The man had some of the money to buy it and had to borrow some money from a place called a bank where lots of money was stored. A bit like a piggy bank.

Well before the men in charge of the piggy bank would let the man have the money they had to make sure that the house was worth what he was paying for it. It might actually have been worth more than he was paying for it, but that didn't matter to the piggy bank men because they were only going to lend enough for the man to buy it.

Well the man had a lot of pound coins, 150 thousand to be exact. The person who was selling the house wanted 450 thousand pound coins. The piggy bank calculated the difference and lent it to the man. The difference was 300 thousand pound coins.

The piggy bank man lent the man the money to buy a house and they set the value of the house. As far as the piggy bank men were concerned, the house value would stay the same until the man wanted to get another piggy bank to lend him money.

The man loved his house and the low amount of money he had to pay each month to the piggy bank men. However he was a wise young man and knew that the money he paid to the piggy bank men would keep going up as time went by. He decided to pay back the piggy bank men as fast as possible.

The man knew it would be difficult because he owed the piggy bank men a lot of money so he set himself little challenges along the way. The first challenge was to own half his house. He knew that even though his house was worth far more than the 450 thousand pound coins the bank thought it was worth, especially after converting a stable into a 1 bed apartment, the bank would always value his house at 450 thousand pound coins. He therefore set his target at paying the piggy bank men pound coins until he only owed them 225 pound coins, which the piggy bank men would see as half the house.

Once the man owned half the house he would go to new piggy bank men who would decide the new price of his house and would pay money to the old piggy bank men in order to take over their half of the house. The man would then continue to pay off as much as he could to the new piggy bank men and would use whatever they thought the house was worth as the next target.

This would continue until he had paid off all the piggy bank men and owned the whole house.

I hope you guys understand it this time because I can't explain it any simpler. If you still can't understand then here are some blocks to play with:

DervProf

RenovationMan wrote: »

*sigh*

I don't know how many times I have to say this, but it seems the same people are just a bit too simple to understand. It's my failing, I've obviously spoken as though you're grown ups and not three year olds.

I'll try again. Are we all sitting comfortably? Then I'll begin.

Once upon a time a person wanted to buy a house to live in for himself and his family. The man had some of the money to buy it and had to borrow some money from a place called a bank where lots of money was stored. A bit like a piggy bank.

Well before the men in charge of the piggy bank would let the man have the money they had to make sure that the house was worth what he was paying for it. It might actually have been worth more than he was paying for it, but that didn't matter to the piggy bank men because they were only going to lend enough for the man to buy it.

Well the man had a lot of pound coins, 150 thousand to be exact. The person who was selling the house wanted 450 thousand pound coins. The piggy bank calculated the difference and lent it to the man. The difference was 300 thousand pound coins.

The piggy bank man lent the man the money to buy a house and they set the value of the house. As far as the piggy bank men were concerned, the house value would stay the same until the man wanted to get another piggy bank to lend him money.

The man loved his house and the low amount of money he had to pay each month to the piggy bank men. However he was a wise young man and knew that the money he paid to the piggy bank men would keep going up as time went by. He decided to pay back the piggy bank men as fast as possible.

The man knew it would be difficult because he owed the piggy bank men a lot of money so he set himself little challenges along the way. The first challenge was to own half his house. He knew that even though his house was worth far more than the 450 thousand pound coins the bank thought it was worth, especially after converting a stable into a 1 bed apartment, the bank would always value his house at 450 thousand pound coins. He therefore set his target at paying the piggy bank men pound coins until he only owed them 225 pound coins, which the piggy bank men would see as half the house.

Once the man owned half the house he would go to new piggy bank men who would decide the new price of his house and would pay money to the old piggy bank men in order to take over their half of the house. The man would then continue to pay off as much as he could to the new piggy bank men and would use whatever they thought the house was worth as the next target.

This would continue until he had paid off all the piggy bank men and owned the whole house.

I hope you guys understand it this time because I can't explain it any simpler. If you still can't understand then here are some blocks to play with:

But sir, you don't seem to know how a mortgage works !

RenovationMan wrote: »

Given that people on a typical 25 year repayment mortgage repay 4% of their capital each year (increasing homeowner equity by 4%)

RenovationMan

DervProf wrote: »

But sir, you don't seem to know how a mortgage works !

Oh DervProf, I know exactly what I'm doing. The evidence is before you on this thread. You're just too stupid to understand. :cool:

DervProf

RenovationMan wrote: »

Oh DervProf, I know exactly what I'm doing. The evidence is before you on this thread. You're just too stupid to understand. :cool:

OK.

Does the capital on a 25 year mortgage reduce at 4% per year (assuming regular, full payments are made) ?

That is what you stated in you opening post. I think that is an incorrect statement. If I am wrong about that, please explain why.

Pimperne1

DervProf wrote: »

OK.

Does the capital on a 25 year mortgage reduce at 4% per year (assuming regular, full payments are made) ?

That is what you stated in you opening post. I think that is an incorrect statement. If I am wrong about that, please explain why.

If you average it out over 25 years it does.

DervProf

Pimperne1 wrote: »

If you average it out over 25 years it does.

Obviously, but in RM's scenario....

RenovationMan wrote: »

the net effect of the 1.3% drop and the 4% equity gain on home owners is therefore an increase in their net equity wealth of 2.7%.

Not a bad return in these difficult times.

That's a very, very sweeping generalisation, and seems like the "analysis" that you'd read in The Express.

And he might claim that on average, people on 25 year mortgages pay off 4% of their capital each year, but in any one year (and he's using 2011) you can't even say that people on 25 year mortgages pay an average 4% off their capital, as it depends very much on the distribution of remaining time on those mortgages.

Pimperne1

DervProf wrote: »

Obviously, but in RM's scenario....



That's a very, very sweeping generalisation, and seems like the "analysis" that you'd read in The Express.

And he might claim that on average, people on 25 year mortgages pay off 4% of their capital each year, but in any one year (and he's using 2011) you can't even say that people on 25 year mortgages pay an average 4% off their capital, as it depends very much on the distribution of remaining time on those mortgages.

Actually I think he is being a bit unfair on those who are reaching the end of their repayment mortgages - they are paying off considerably more than 4% of their capital per year.

nembot

I think you perhaps are seeing the situation more from your own perspectve Renovation Man, only the top say 20% of workers could put 50k into property in a couple of years (fair play to you btw) saving 25k a year for the average worker, on an average wage... is nigh on impossible.

Thrugelmir

RenovationMan wrote: »

Can you supply details of this evidence that a larger proportion of IO mortgages don't have repayment vehicles than do? I'd be amazed.

How many people who have endowment policies are now extending their mortgage terms to repay the shortfalls?

NR lent to anybody that was capable of putting an X on a piece of paper. Many of these borrowers believed their mortgages (and unsecured debt) would be inflated by HPI. As that's what the Daily Express said. There's still some serious sorting out to be done over the next decade.

Cleaver

Kennyboy66 wrote: »

2) Approx 1/3 mortgages taken out between 2003 and 2010 were interest only - the majority with no repayment vehicle.

They peaked at just over 30% in 2007.

Roughly taking the figures from the graph:

2003 = 15%
2004 = 16%
2005 = 24%
2006 = 27%
2007 = 32%
2008 = 30%

I believe in 2009 to present IO mortages made up a tiny part of the market.

So maybe around 1 in 5 or 1 in 4 mortgages taken out between 2003 and 2010 were interest only rather than 1 in 3?