House prices suffer biggest drop since 2009 - Nationwide -2.6%

Dan:_4

DervProf wrote: »

Surely any house price falls are significant. While we have small price falls, it will mean that deposits ae not being "reduced" by HPI, and when you finally take on a mortgage, it won't be as large as if we were experiencing HPI.

I'm sure that if HPI is -1% per annum, it would be very significant to someone saving up a deposit for their first home, compared to having positive HPI..

I suppose so mate.

HAMISH_MCTAVISH

DervProf wrote: »

I'm sure that if HPI is -1% per annum, it would be very significant to someone saving up a deposit for their first home, compared to having positive HPI..

But with average rents at 5.5% and average mortgage interest at 3.5%, they're still worse off than they would be if the mortgage drought was fixed and they could buy right away.

For renters these days, "saving for a deposit" actually means "increasing lifetime housing costs", and it will take a lot more than a few years of -1% HPI to change that fact.

DervProf

HAMISH_MCTAVISH wrote: »

But with average rents at 5.5% and average mortgage interest at 3.5%, they're still worse off than they would be if the mortgage drought was fixed and they could buy right away.

For renters these days, "saving for a deposit" actually means "increasing lifetime housing costs", and it will take a lot more than a few years of -1% HPI to change that fact.

I don't think dan mentioned anything about renting, but I suppose it might make you feel better about negative HPI if you compare being a homeowner with renting.

Yes Hamish, buying your own home usually is better for your financial situation than renting, certainly in the long term. Thanks for reminding those of us that were not aware of that fact, or may have forgotten.

DervProf

Dan: wrote: »

I suppose so mate.

I think I know what you mean when you said that low -HPI isn't significant to you, if you are waiting to buy your first home. I'll expand the point I made by saying that low negative HPI, that we are currently experiencing, must be significantly better than the kind of HPI we were getting pre - '07. If that had carried on much longer, it's arguable that FTBers would have ended up in more difficulty than they are now, unless the banks had continued to be ever more generous in their lending activities (see America for the likely outcome if they did). I feel that what we have now is a situation that is gradually (albeit rather uncomfortably for some) getting the property market back into a more sensible position. Despite what some would have you believe, rampant, or constant HPI usually ends up with problems.

Graham_Devon

HAMISH_MCTAVISH wrote: »

But with average rents at 5.5% and average mortgage interest at 3.5%, they're still worse off than they would be if the mortgage drought was fixed and they could buy right away.

For renters these days, "saving for a deposit" actually means "increasing lifetime housing costs", and it will take a lot more than a few years of -1% HPI to change that fact.

The over riding point in all of these renting vs buying discussions is that it [wrongly] assumes that the renter has cash waiting to buy.

Fee's and taxes are never bought ito the equation. Those alone can often pay a years rent in it's entirity.

Most renters couldn't just buy now even with 90% LTV's being widely available. It's one of the main reasons we needed 100 / 110 / 125% mortgages.

Theres more to it than the monthly rental cost and the monthly mortgage. But on saying all that, I do understand why you feel the need to use such vague comparisons.

RUN_RABBIT_RUN

DervProf wrote: »

Well, from what I have seen, these forum members don't appear to be "full of themselves". Sure, they are wrong sometimes, but they don't come across as being arrogant. They seem to be of a bearish persuasion, which I suppose is much like myself.

i disagree, but fair enough

Zero_Sum

RenovationMan wrote: »

You'd still have to pay that front loaded interest whether you bought a year ago or today, so you'd still be 4% further on in your mortgage than someone buying today.

yes you'd have paid 4% of your payments, but you said

"repayment mortgage would have reduced their mortgage by 4% by now"

REDUCED, do you see?

ie capital payments.

so no the reduction in mortgage would be less than 2%

Zero_Sum

HAMISH_MCTAVISH wrote: »

Oh for heavens sake you lot.....

You're both right, and you're both wrong.

Reno man is right in saying that each year of a mortgage that passes, you're 4% closer to paying it off.

And in terms of the total amount that you will have to pay to a bank over 25 years, you do indeed pay 4% of that every year.

except thats not what he said

sabretoothtigger

2% of the capital repaid sounds quite low but if rates were higher, the costs can be alot worse


Theres a good point not made often that any extra capital repaid in the first few years is a massive benefit.

Like if we did have 3% rates for next 25 years. You take a big effort to pay another 1000 off in your first year of mortgage, this comes off capital as you already cleared the interest owed.

So the benefit is 3%x24 years x 1000 which equals £2032.79 gained. That bonus 1032 is repaid to Joe Bloggs's bank account over the years.
I reckon because its not a lump sum in the mail people miss how easy it is to save money

5% over 25 years would be £3225 less or over double the original money is added to the payee bank account
6% rates would return over triple your money
7% quadruple etc - rates were 10% in the nineties



Next investment thread someone posts, I dont know what to invest in. Im going to copy and paste that

HAMISH_MCTAVISH

Zero_Sum wrote: »

ie capital payments.

so no the reduction in mortgage would be less than 2%

That entirely depends on the interest rate being paid.

As already explained, if he's on a circa 2.5% rate on a repayment mortgage, his capital paid will be over 3%.