Basic Advice needed for Interest Only mortgages

dougk_2

Depends if its long or short term.

A house unlike most other objects you buy long term increase in value.

If we went through life wondering about the right time to buy or sell anything no-one would ever buy anything.... why buy a present at christmas when you know it will be cjheaper in the sales? Why buy a TV now when you know the same model will be cheaper at the end of its run (or next year)?

If you want somewhere of your own and you need somewhere to live and have security in knowing you chooses when you leave (rather than a landlord), then buying a house provides this solution.

lipidicman

Now that I agree with. But back to the theme of interest only mortgages, would you not rather be chipping away at the capital?

dougk_2

Given the choice yes - but what I was saying was it is an option that may not be as bad as it first looks.

Obviously the best scenario is to borrow as little as possible and pay it back as quick as possible if you are not using the money to make money (i.e. stoozing).

slater14

Doug,

Can I come and live on your planet because it sounds a lot better than this one!

Interest rates are steadily rising, the historical average is 8% and from what I have read, heard and witnessed by the BoE in the last 6 months there is no reason why we shouldnt head back to our historical average.

Given this, you will now be losing £33 pm as apposed to renting that property. Also, you do not stand to lose tens of thousands of pounds if the market does "correct" itself.

You cannot use the rates of the last couple of years to base your argument that it wont happen. If this were the case, I would be quoting % rates of 15% (and god forbid, in this scenario you would be losing £762 pm as apposed to renting)

As for buying a telly. In my world telly's dont cost hundreds of thousand of pounds.

dougk_2

You can get 10 year fixed rates at 5.09% so what is the risk?????

Interest rate rises need not effect someone who buys a house if they are on a fixed rate.

Interest rates may rise no more they may rise .5% - is it a big deal?

Just because you wnat to get out of the market (maybe becasue you have been swayed to think a big crash is imminent - which apparenetly it has been for 4 years!)

Whether it be a TV , car, house or loaf of bread the principle is the same.

slater14

Indeed it is Doug,

The price of bread telly's, cars etc. have not tripled in value in 5 years (even taking into account inflation). THIS IS THE POINT.

Interst may rise 0.5% a big deal? well, when you borrow 6 times your salary on an interest only mortage 0.25% is a mighty big deal.

10 year fixed at those rates will not be for interest only and would be for the lucky few who are A1 credit scored.....like it says in the small print - typical APR - doesnt mean it applies to you just that it applies to somewhere around 30% of applicants -

Do you ever read Martins info?

Most articles I have read havent predicted a crash for 5 years, they have pointed out that we are in a "bubble". In the last 2 years the talk is indeed of a correction (read as crash).

slater14

Doug,

I have re-read your post and am very curious.... Can you point me towards this mystical land that has houses for sale at 125k where the actual rent achieved is £800pm?

A house in Manchester bought for that sum will achieve no more than £550 pm and thats the very top if you're lucky.

Or are you saying that *IF* you had bought 4 years ago for 125k that you could achieve £800 pm?

Would you care to point me towards a website that has property for sale and rent that backs up this claim so we can all see a like for like comparison?

dougk_2

Try the areas around Reading... go on do a search on the local newspaper websites.

Try postcode RG31 for example.

Actually the price of houses has increased in tha last 3 months so the cheapest 2 bed available in now approx £130k ... maybe 125k after neg. These were figures I was looking at xmas time.

Rental price in the area 2 bedroom house - circa £800 to £850 PCM

Another example: Norwich

2 bed Terrace houses can be purchased for circa £100k
Rental prices for these are between £550 and £600

Any estate agents and letting agents in the areas will confirm the same. Perhaps Manchester is not the place to buy and rent at the moment????

dippy

According to find a property, the guide/average prices in the Reading and Bracknell area are:

To buy a 2 bed house £ 208,379
To rent a 2 bed house £ 763 pcm

dougk_2

Dippy,

That is probably correct. The reading and Bracknell areas are quite large.

There are some very expensive areas with an abundance of detatched 2 bed houses and bungalows (where there is very little rental property available) and also some very dubious areas which are cheaper but consists of lots of rental /council properties.

The more expensive areas put the average up considerably.

If you are looking within say 2 or 3 miles of reading town centre there are an abundance of 2 or 3 bed houses available for £160k.