Help to buy Mortgage Guarantee scenario

[Deleted User]

Let's say Mr Average wants to buy a 140k house. Let's say Help to buy Mortgage Guarantee offers a 4.4% mortgage rate with a 5% deposit. This then means a monthly repayment of £672 over 30 years or at a third of his wage a gross £31k salary.

Personally I don't see how mortgage rates at 4.4% are really that great. Not unless Mr Average earns more than average or wants a house cheaper than average.

ILW

Deleted_User wrote: »

Let's say Mr Average wants to buy a 140k house. Let's say Help to buy Mortgage Gurarantee offers a 4.4% mortgage rate with a 5% deposit. This then means a monthly repayment of £672 over 30 years or at a third of his wage a gross £31k salary.

Personally I don't see how mortgage rates at 4.4% are really that great. Not unless Mr Average earns more than average or wants a house cheaper than average.

Average wages have never bought average houses. It's a ladder.

[Deleted User]

ILW wrote: »

Average wages have never bought average houses. It's a ladder.

True but if Mr Average earns ~30k and the average house is £165k then a house at 140 doesn't seem unreasonable.

ILW

Deleted_User wrote: »

True but if Mr Average earns ~30k and the average house is £165k then a house at 140 doesn't seem unreasonable.

£100 to £110k would be reasonable if single earner.

[Deleted User]

ILW wrote: »

£100 to £110k would be reasonable if single earner.

Hmmm - that's a shame. Maybe Mr Average fancied a semi-detached rather than a bog standard Terrace.

ILW

Deleted_User wrote: »

Hmmm - that's a shame. Maybe Mr Average fancied a semi-detached rather than a bog standard Terrace.

He will probably be unlucky then.

[Deleted User]

ILW wrote: »

He will probably be unlucky then.

Or he'll save a big enough deposit to get better rates than 4.4%...

ILW

Deleted_User wrote: »

Or he'll save a big enough deposit to get better rates than 4.4%...

Chances are that rates will go up at some time. I would suggest he needs to budget for 7 or 8%.

michaels

Also his debt is fixed in nominal terms, historical evidence would suggest that it will fall quite considerably as a proportion of his nominal income over time.

I would agree that a variable rate 4% over base is hardly something to celebrate, I thought those sort of big margins was preceisely what this policy was supposed to fix. If the bank avoids the first 20% of any losses then charging that sort of premium still suggests there is a high risk of default with more than 20% equity loss or that the banks cost of funding is far above libor...or of course that there is not enough competition and margins are very profitable

Graham_Devon

michaels wrote: »

Also his debt is fixed in nominal terms, historical evidence would suggest that it will fall quite considerably as a proportion of his nominal income over time.

I would agree that a variable rate 4% over base is hardly something to celebrate, I thought those sort of big margins was preceisely what this policy was supposed to fix. If the bank avoids the first 20% of any losses then charging that sort of premium still suggests there is a high risk of default with more than 20% equity loss or that the banks cost of funding is far above libor...or of course that there is not enough competition and margins are very profitable

I would assume it will be on the same sort of rates that we see for help to buy part 1.

With lloyds, a 5 year fix appears to be 4.89% (with no fee) for a 90% mortgage. Then 3.5% over base from year 5 on. So with base rates at 5%, a mortgage rate of 8.5%.

So I would assume a 95% mortgage with the 15% guarantee would be around the same pricing?

The key thing help to buy buyers need to be aware of is that they won't simply be able to move product. They could well be looking for another 5-10% "high street" product (due to their initial 5% deposit), therefore face even higher rates, or find themselves stuck on the same mortgage.

Hopefully people get the right advice at the start....unlike the era of 110%+ mortgages leaving people (and us) with the problems they face now.

Loughton_Monkey

Deleted_User wrote: »

Hmmm - that's a shame. Maybe Mr Average fancied a semi-detached rather than a bog standard Terrace.

It's not a 'shame'. More a reality that has always applied, and presumably always will.

This rather silly analysis of an average salary person buying an average house is totally fallacious. Look at 100 people who leave school/university, and start earning. Apart from abrupt life-changing circumstances [irrelevant to the main argument] you will find that 'real' wages increase over time.

Someone in a 'job' [rather than career] will tend to get promotions, salary grade increments, move to higher paid company when jobs are available..... But this sort of person tends not to be a house buyer anyway.

Someone in a career will tend to get to national average wage more quickly, and then move beyond that, at which point they trade up to (at least) an average house, and often beyond.

I consider my own career progression as 'OK' for a graduate, but not necessarily 'sparkling'. Even so, my salary at retirement was 100+ times my starting salary [helped by 20%+ inflation throughout the 70's], all of which meant it was quite easy to end up in a house 5 or 6 times more expensive than 'average'.

Ask yourself what an 'average' car costs, if such things exist. Probably you're talking of a 2-year-old car worth, say, £25K. How many first time car buyers do you know who buy such a car as their first purchase?