Take cover! The housing market is heading for a bloody and protracted crash!

black_taxi_2

good point malkie

but interest rates were quite high then

Thrugelmir

Conrad wrote: »

Many companies are cash rich.

One suspects not for much longer. As tax avoidance seems high on the Agenda.

Apple being a classic case. Paying an effective rate of Corporation Tax in the UK of under 3%.

malkie76

black_taxi wrote: »

good point malkie

but interest rates were quite high then

Totally accept your point, but I was only using the figure to show how house prices have changed. I'm not even sure interest only mortgages were available back then. Obviously endowment mortgages were, and for the most part haven't panned out.

RenovationMan

malkie76 wrote: »

Totally accept your point, but I was only using the figure to show how house prices have changed. I'm not even sure interest only mortgages were available back then. Obviously endowment mortgages were, and for the most part haven't panned out.

Endowment mortgage are interest only mortgages. The endowment was an investment vehicle that was supposed to pay off the balance of the mortgage at the end of the term.

The problem with endowments is that they outlived their time. They were fine in a high interest environment of the 70s and 80's but rubbish in the low interest environment of the 90's and 00's. The other problem was that people did not monitor them to see how they were doing, though this is true of many other investments, especially pensions.

black_taxi_2

when i went for a mortgage---capital repayment mortgage was last down the list.

thought lender had my interests(me-totaly gullible)/game me an endowment which went wrong

the internet has changed everything/good/bad for info

Conrad

black_taxi wrote: »

the internet has changed everything/good/bad for info

It has but there's a ton of horse schit to wade through to get to facts. Even the endowment thing was way overblown. I've been at this 20 years and have found those that stuck with them ended up getting more back than they first thought. People just didn't understand the up's and downs of a stock market based investment. You never saw the Daily Mail headline "great news for endwoments as stock markets plunge", yet this headline would be accurate - buying stocks when they've fallen in value is a very good thing indeed.

There were some awful high charges providers though such as Abbey Life, General Portfolio, The Pearl, Allied Crowbar, Sun Life of Canada and others.

RenovationMan

malkie76 wrote: »

I thought the principle with this technique was to buy somewhere large on interest only - live your life there (have kids etc), then sell at the end of the 25 years and buy somewhere modest outright for retirement (or a small mortgage to cover the difference).

Works if house-prices rise across 25 years, which they historically have (obviously I have no crystal ball for the future).

Average house price in 1987 ~£40k which wouldn't be a frightening amount of capital to repay today.

I certainly wouldn't go for interest only myself, as I'm more of a cautious "bird in the hand" sort of person.

I think this 'investment strategy' mostly only exists in the minds of a few people on this board. The reality is often that people get to the end of their term and can't pay off their mortgages due to shortfalls in their investment vehicles or due to divorce, death or other life-changing events getting in the way.

However, the 'investment strategy' as a purely theoretical idea is very interesting. If you have twin brothers 'Bill and 'Ted', they work in the same company doing the same job. Bill acquires a house on interest only and Ted rents. They both pay similar amounts each month for their accomodation.

At the end of 25 years, Bill has to sell his house because he hasn't paid back his mortgage capital. It's a bit of a hassle but he knew this was coming and people sell houses all the time, no biggie. He then moves into rented accomodation next door to his twin Ted. So, after 25 years they are now both in rented accomodation.

HOWEVER, Bill made £100k on the sale of his house because of HPI. Bill also has had 25 years of security of tenure, while Ted has had to move a few times because his various landlords have sold up, gone bust, etc. Ted also moved a couple of times because the landlords didn't maintain the property to Ted's standards. Also Ted has paid top dollar for his heating and electricity because his various landlords had no interest in spending money on insulation or energy efficient boilers. Ted also had a keypay system on some of the rental properties, which is always at a higher rate than direct debits. Bill meanwhile got some subsidized loft and cavity wall insulation and was able to sort out the best tarrif on his utilities, saving him a fortune in energy bills.

Hmnn... One wonders who is the better off. Dirty IO mortgage holder Bill or clean conscience renter, Ted.

Thrugelmir

RenovationMan wrote: »

I think this 'investment strategy' mostly only exists in the minds of a few people on this board. The reality is often that people get to the end of their term and can't pay off their mortgages due to shortfalls in their investment vehicles or due to divorce, death or other life-changing events getting in the way.

However, the 'investment strategy' as a purely theoretical idea is very interesting. If you have twin brothers 'Bill and 'Ted', they work in the same company doing the same job. Bill acquires a house on interest only and Ted rents. They both pay similar amounts each month for their accomodation.

At the end of 25 years, Bill has to sell his house because he hasn't paid back his mortgage capital. It's a bit of a hassle but he knew this was coming and people sell houses all the time, no biggie. He then moves into rented accomodation next door to his twin Ted. So, after 25 years they are now both in rented accomodation.

HOWEVER, Bill made £100k on the sale of his house because of HPI. Bill also has had 25 years of security of tenure, while Ted has had to move a few times because his various landlords have sold up, gone bust, etc. Ted also moved a couple of times because the landlords didn't maintain the property to Ted's standards. Also Ted has paid top dollar for his heating and electricity because his various landlords had no interest in spending money on insulation or energy efficient boilers. Ted also had a keypay system on some of the rental properties, which is always at a higher rate than direct debits. Bill meanwhile got some subsidized loft and cavity wall insulation and was able to sort out the best tarrif on his utilities, saving him a fortune in energy bills.

Hmnn... One wonders who is the better off. Dirty IO mortgage holder Bill or clean conscience renter, Ted.

Huge number of assumptions. Owner never moves , has no maintenance costs, same job for 25 years. Paints a picture to portray a view. Not real life.

shortchanged_2

RenovationMan wrote: »

HOWEVER, Bill made £100k on the sale of his house because of HPI. Bill also has had 25 years of security of tenure, while Ted has had to move a few times because his various landlords have sold up, gone bust, etc. Ted also moved a couple of times because the landlords didn't maintain the property to Ted's standards. Also Ted has paid top dollar for his heating and electricity because his various landlords had no interest in spending money on insulation or energy efficient boilers. Ted also had a keypay system on some of the rental properties, which is always at a higher rate than direct debits. Bill meanwhile got some subsidized loft and cavity wall insulation and was able to sort out the best tarrif on his utilities, saving him a fortune in energy bills.

Hmnn... One wonders who is the better off. Dirty IO mortgage holder Bill or clean conscience renter, Ted.

However when coming to sell, Bill's house was found to be suffering from subsidence and he had not spent a penny on any renovations over the years and the house was nothing more than a shed with a roof. So unfortunatley he got nowhere near the £100K premium on the offer he was expecting. Shame.

RenovationMan

Thrugelmir wrote: »

Huge number of assumptions. Owner never moves , has no maintenance costs, same job for 25 years. Paints a picture to portray a view. Not real life.

True, but then let's not go the other way and say that a homeowner has to put a new roof on their house every 10 years and buy a new central heating boiler every 3 years.

You're welcome to make the scenario more realistic, perhaps you might want to look at the fact that on the day Bill bought the house the amount he owes is frozen, and so in 15 years time his monthly amounts remain the same (apart from fluctuations in interest rates). Ted however will be paying a far different amount in 15 years time due to rent inflation.

It's all swings and roundabout with these scenarios, but I think even you will have to agree that the IO mortgage holder will gain more than the renter over 25 years in both financial and non-financial ways.