House price correction - Taking the hard route

Landprofits

CLAPTON wrote: »

There may be many reasons for rejecting help to buy; but a part mortgage deal at 0% for 5 years then 1.75% + RPI doesn't seem to be one of the them.

I'm not suggesting it isn't a good deal - just pointing out that many treat debt irresponsibly, the cost of which could end up being a burden to the taxpayer.

All the details I read online are somewhat sketchy. Am I correct in saying that the 1.75% isn't technically "interest", but a "fee" applied to the outstanding value of the loan? And, on the same token, after year five it's 1% + inflation applied to the outstanding value?

If that's the case, then in the same way that inflation erodes the value of 20k kept under a mattress, in this case inflation (+1%) is going to compound to that outstanding loan year upon year.

All fine I suppose if the buyer has a plan in place to settle the loan. But the question is - how many will?

I am also curious about the condition of the loan being payable whenever the purchaser chooses to do so. This is why I said in my last post that it could turn into "never".

TruckerT

Generali wrote: »

My understanding is that the Government guarantees part of your mortgage under Help to Buy.

Whether you call it a subsidy, or an incentive, or any other bit of marketing jargon, the result is likely to be a rise in house prices for a couple of years, until the 'market' hits the next set of buffers.

It is not at all clear who is intended to benefit from this scheme, but there seems to be a widespread view that rising house prices are a good thing, and any government which can bring about more expensive housing costs seems likely to get more votes?

The Labour party continues to come over as having no useful answers. It would be interesting to hear the public's response to a Labour proposal to embark on a major programme of council house building, as an alternative to the failed obsession with the idea of universal owner-occupation.

TruckerT

CLAPTON

Landprofits wrote: »

I'm not suggesting it isn't a good deal - just pointing out that many treat debt irresponsibly, the cost of which could end up being a burden to the taxpayer.

All the details I read online are somewhat sketchy. Am I correct in saying that the 1.75% isn't technically "interest", but a "fee" applied to the outstanding value of the loan? And, on the same token, after year five it's 1% + inflation applied to the outstanding value?

If that's the case, then in the same way that inflation erodes the value of 20k kept under a mattress, in this case inflation (+1%) is going to compound to that outstanding loan year upon year.

All fine I suppose if the buyer has a plan in place to settle the loan. But the question is - how many will?

I am also curious about the condition of the loan being payable whenever the purchaser chooses to do so. This is why I said in my last post that it could turn into "never".

any debt managed irresponsibly can get out of hand (credit cards, car loans, ordinary mortgages etc)

I see no reference to the fee that becomes payable after 5 years being rolled up into the loan: I assume it is payable each year so I see no scope for the debt growing out of hand

the debt must be paid back within 25 years or upon sale of the property

if people make no provision to pay the debt back within 25 years then they can sell up and pay the amount back out of the profits.

TruckerT

CLAPTON wrote: »

any debt managed irresponsibly can get out of hand (credit cards, car loans, ordinary mortgages etc)

I see no reference to the fee that becomes payable after 5 years being rolled up into the loan: I assume it is payable each year so I see no scope for the debt growing out of hand

My daughter bought a house using the scheme which was available at the time. She has recently had a child, which was entirely predictable given her age, and she soon has to begin paying a fee of £160 per month in addition to her (variable interest rate) mortgage. Luckily, my daughter had me for a father, and has prepared herself well. Others, who might have assumed that their homes would have massively increased in value, will not be so lucky.

the debt must be paid back within 25 years or upon sale of the property

if people make no provision to pay the debt back within 25 years then they can sell up and pay the amount back out of the profits.

There is little difference between what you suggest, and the easy availability of interest-only and self-certificated loans which many people blame for the melt-down. And which are now regarded as totally wrong and unacceptable (since they depend, like you, on the assumption that property ownership offers a guaranteed profit)

TruckerT...

HAMISH_MCTAVISH

TruckerT wrote: »

and the easy availability of interest-only and self-certificated loans which many people blame for the melt-down.

Eh?

No aspect of UK mortgage lending was the cause of the global financial crisis.

And not a single credible person has ever claimed it was.

CLAPTON

TruckerT wrote: »

My daughter bought a house using the scheme which was available at the time. She has recently had a child, which was entirely predictable given her age, and she soon has to begin paying a fee of £160 per month in addition to her (variable interest rate) mortgage. Luckily, my daughter had me for a father, and has prepared herself well. Others, who might have assumed that their homes would have massively increased in value, will not be so lucky.


TruckerT...

How would an increase in value of the property have helped your daughter make the mortgage and fee payments?

Does she now regret her decision or is she pleased with the way things panned out?

There is little difference between what you suggest, and the easy availability of interest-only and self-certificated loans which many people blame for the melt-down. And which are now regarded as totally wrong and unacceptable (since they depend, like you, on the assumption that property ownership offers a guaranteed profit)

No-one seriously believes this in the UK context.


If you seriously think property prices will be lower in 25 years time (the timescale I stated) presumely you are selling your own property now and encouraging your daughter to do likewise.

TruckerT

HAMISH_MCTAVISH wrote: »

Eh?

No aspect of UK mortgage lending was the cause of the global financial crisis.

And not a single credible person has ever claimed it was.

No aspect of UK mortgage lending would be capable, on its own, of causing a global financial crisis. It needed international co-operation, which was readily available.

Who would you describe as 'credible' - grizzly, Clapton, generali, thrugelmir?

TruckerT

CLAPTON

TruckerT wrote: »

No aspect of UK mortgage lending would be capable, on its own, of causing a global financial crisis. It needed international co-operation, which was readily available.

Who would you describe as 'credible' - grizzly, Clapton, generali, thrugelmir?

TruckerT

I had in mind economists and recognised economic organisations.

RBS failed due it huge US based debts plus the Amro purchase

HBOS failed largely due to its mad commerical loans.

Northern Rock failed as it financed it's mortgage business on inter bank loans rather than domestic borrowing.
It's basic business was pretty sound and the default rate only a little higher than other mortgage lenders.

TruckerT

CLAPTON wrote: »

How would an increase in value of the property have helped your daughter make the mortgage and fee payments?

That is the question which has no answer - people got used to the idea that an increase in house prices is the same as an increase in wealth. But it ain't necessarily true.

Does she now regret her decision or is she pleased with the way things panned out?

She is settled - things are going to plan!

No-one seriously believes this in the UK context.

I do!!

If you seriously think property prices will be lower in 25 years time (the timescale I stated) presumely you are selling your own property now and encouraging your daughter to do likewise.

I sold my property several years ago - I am happily living on pension credits and housing benefit. My landlady is a peach.

My daughter is settled in her home, and there would be little advantage in moving into rented accommodation. If the value of her house falls, then so will the price of the house which she would be looking to buy. If she finds herself in negative equity, it won't be her fault, it will be a failure of the bankers and politicians to manipulate the housing market effectively.

TruckerT...

TruckerT

CLAPTON wrote: »

I had in mind economists and recognised economic organisations.

RBS failed due it huge US based debts plus the Amro purchase

HBOS failed largely due to its mad commerical loans.

Northern Rock failed as it financed it's mortgage business on inter bank loans rather than domestic borrowing.
It's basic business was pretty sound and the default rate only a little higher than other mortgage lenders.

No doubt all the other countries which are embroiled in the 'global financial crisis' can also point to a similar lack of responsibility for the way things have panned out.

TruckerT