Halifax July - 0.6% MOM, -0.6% YOY

HAMISH_MCTAVISH

the_flying_pig wrote: »

this conversation started looking at history, what actually happened, when interest rates started off a fair bit higher than 3.5%

Quite.

And then fell a fair bit lower than 3.5%.

From mid-2007, rates started out at 5.5%, and fell rapidly to 0.5%.

I'm using a typical high street tracker reverting to SVR for my own comparison. Which would average 2.5% per year since mid 2007.

To give you the benefit of the doubt, I've used the current, higher, average mortgage figure for the generic valuation.

I've already acknowledged that someone on a 5 year fix would be worse off.

and prices did fall by more than 10% over five years..

Less than 5% on Acadametrics and ONS, less than 10% on ROS, 10.6% on Nationwide, and 12%-ish on Land Registry.

the_flying_pig

HAMISH_MCTAVISH wrote: »

...From mid-2007, rates started out at 5.5%, and fell rapidly to 0.5%.

I'm using a typical high street tracker reverting to SVR for my own comparison. Which would average 2.5% per year since mid 2007.
...

average base rate since summer 07 is about 1.8%.

you're assuming that someone paid base rate + 0.7% for five years?

Graham_Devon

Hamish, the ONS data is currenly flawed. Let is smooth out for a year before using it to back up these arguments.

HAMISH_MCTAVISH

the_flying_pig wrote: »

average base rate since summer 07 is about 1.8%.

you're assuming that someone paid base rate + 0.7% for five years?

No, I'm assuming someone bought a typical high street tracker reverting to SVR mortgage from a typical high street bank such as Lloyds or Nationwide, and paid base +0.5% (tracker) for the first 2 years, and then base + 2% (SVR) for the next 3 years.

-From August 07 until August 08 base rates would have averaged around 5.25%.

So that's one year with an average of 5.75% on the mortgage rate.

-From September 08 until Feb 2009 rates would have averaged around 2.5%.

So that's 6 months with an average of 3% on the mortgage rate..

-From March 2009 until August 2009 base rate of 0.5%.

So that's 6 months with a mortgage rate of 1%.

-From August 09 until August 12 base rate of 0.5%.

So that's 3 years with a mortgage rate of 2.5%.

In total.....

3 years @ 2.5%

1 year @ 5.75%

6 months @1%

6 months @3%

Average for 5 years since August 2007 = 3.05%. And with rental yields around the 5% to 6% range, you really do need falls north of 10% to 12% to make deferring purchase since 2007 stack up. (assuming a tracker, average rent, and average house price)

Which is only clearly the case with the Halifax index, is clearly not the case with ROS, Acadametrics and ONS, and is pretty marginal with Nationwide or Land Registry.

For reference here are the BOE's rate change dates.... I've estimated the in-year averages, you can build a spreadsheet if you want to check, but I'll be close enough.

Thu, 05 Mar 2009 0.5000
Thu, 05 Feb 2009 1.0000
Thu, 08 Jan 2009 1.5000
Thu, 04 Dec 2008 2.0000
Thu, 06 Nov 2008 3.0000
Wed, 08 Oct 2008 4.5000
Thu, 10 Apr 2008 5.0000
Thu, 07 Feb 2008 5.2500
Thu, 06 Dec 2007 5.5000
Thu, 05 Jul 2007 5.7500

the_flying_pig

HAMISH_MCTAVISH wrote: »

No, I'm assuming someone bought a typical high street tracker reverting to SVR mortgage from a typical high street bank such as Lloyds or Nationwide, and paid base +0.5% (tracker) for the first 2 years, and then base + 2% (SVR) for the next 3 years.

-From August 07 until August 08 base rates would have averaged around 5.25%.

So that's one year with an average of 5.75% on the mortgage rate.

-From September 08 until Feb 2009 rates would have averaged around 2.5%.

So that's 6 months with an average of 3% on the mortgage rate..

-From March 2009 until August 2009 base rate of 0.5%.

So that's 6 months with a mortgage rate of 1%.

-From August 09 until August 12 base rate of 0.5%.

So that's 3 years with a mortgage rate of 2.5%.

In total.....

3 years @ 2.5%

1 year @ 5.75%

6 months @1%

6 months @3%

Average for 5 years since August 2007 = 3.05%. And with rental yields around the 5% to 6% range, you really do need falls north of 10% to 12% to make deferring purchase since 2007 stack up. (assuming a tracker, average rent, and average house price)

Which is only clearly the case with the Halifax index, is clearly not the case with ROS, Acadametrics and ONS, and is pretty marginal with Nationwide or Land Registry.

For reference here are the BOE's rate change dates.... I've estimated the in-year averages, you can build a spreadsheet if you want to check, but I'll be close enough.

Thu, 05 Mar 2009 0.5000
Thu, 05 Feb 2009 1.0000
Thu, 08 Jan 2009 1.5000
Thu, 04 Dec 2008 2.0000
Thu, 06 Nov 2008 3.0000
Wed, 08 Oct 2008 4.5000
Thu, 10 Apr 2008 5.0000
Thu, 07 Feb 2008 5.2500
Thu, 06 Dec 2007 5.5000
Thu, 05 Jul 2007 5.7500

hmm. please do correct me if i'm wrong but i don't think you're playing this straight down the line, not at all.

1 - your SVR assumption is biased downwards - the average SVR has never, ever, been below 4% [e.g. see chart 1.13 of this spring's BoE inflation report]. if you're going to assume that someone through good luck or fortune is paying less than the average then to be balanced why not assume by the same token that through good luck or fortune they're paying less than the average rent on their pwoperdee?

2 - the way you use your 'average rental yield of 5.5%', even if one accepts that the 5.5% is an accurate number [which i've no particular reason to do -the most reliable-looking recent intelligence i've seen on the subject suggests that 5.5% is about the highest you get anywhere in the UK, with all areas other than London or Scotland being below 5%], is biased upwards & simplistic because in our example rent is 5.5% of today's prices, i.e. £90k [i.e. less than £5k p.a. in 2012, & less than that in 2011, less again in 2010, & so on], not 5.5% of £100k.

3 - a third source of bias - still no sign in your figures of conveyancing fees, surveys, maintenance costs, mortgage arrangement fees, valuation charges, buildings insurance, possible ground rent [on a leasehold flat], stamp duty, etc.


my very conservative conclusion from all of the above is:

1 - if you'd got a 5-yr fix in 2007 you'd have been quite a lot better off renting - the rent would have been a fair bit less than your interest & you'd have incurred no capital loss.

2 - if you'd paid the average SVR since 2007 [call it 4%, £4k p.a., throughout 2007-2012, which is exceptionally generous to your case since as my best buy table showed paying as low as 4% was totally infeasible in 2007/08, even with a hefty fee involved, and at no point subsequently was the average SVR less than 4%] interest payments would have been somewhat less than your rent [which would have been a little less than £5k p.a. throughout - although maybe not by much at all if, as I suspect (see above) a 5.5% rental yield assumption would be too high], but this saving would only compensate you for about half of the £10k capital loss.