MILLIONS of Young People WANT & NEED Higher House prices!!!

Generali

Spidernick wrote: »

Madness! If house prices increase at a uniform rate then all it means is that it's a wider gap for that next rung up the ladder - simple maths really!

It's not always that straightforward. If you have more equity you can get a better interest rate.

ruggedtoast

This article hasn't gone down very well over on the forum hpc.co.uk

quantic

I was reading somewhere, that apparently if you repay your mortgage instead of getting an interest only or remortgaging every 3 years for another 35 year term. You can build some...

I think he called it "equity", I'm not convinced though - he also claimed to be a Nigerian prince.

Jason74

thequant wrote: »

Dispels the myth that increasing house prices are bad for our younger generation.

It really doesn't. Rising house prices are bad for the younger generation. What this article (assuming that it is in any way representative given the source) demonstrates is that some young people don't understand this fact.

It's a bit like an alocholic saying his problem is that he can't have another drink, when the problem is actually that he is addicted to alcohol in the first place. He is misdiagnosing the problem, and suggesting the wrong "solution" as a result. The situation is very similar here.

HAMISH_MCTAVISH

Spidernick wrote: »

Madness! If house prices increase at a uniform rate then all it means is that it's a wider gap for that next rung up the ladder - simple maths really!

Couple of flaws in your theory there.

1) House prices tend not to rise or fall at a uniform rate, that they did was one of the biggest myths peddled by crashaholics in recent times. In the last crash, the price of typical FTB houses fell far more in % terms than the price of typical 2TB houses. So the gap between rungs widened as prices fell instead of narrowing. The crash made it harder to trade up, not easier.

2) In todays age of ongoing mortgage dysfunction, where abnormally large deposits are often needed, the absolute amount of equity/deposit required to get a mortgage is often more of a hindrance than the debt service costs.

To illustrate what the deposit issue looks like....

Nick buys a house for 100K with a 10% deposit but a higher rate of interest. In 5 years it's still worth 100K. After transaction/moving costs (and allowing for the fact that little capital is paid down in the first 5 years) Nick will leave that house with maybe 12K in equity.

Nick's equity stake has gone from 10% to 12% in 5 years.

If Nick now moves into a slightly bigger house costing 130K, he doesn't even have a 10% deposit, and his mortgage rate (if he can get one) will be through the roof.

However if Nick's first house increases to 130K in the same 5 years, Nick leaves with 42K in equity.

The slightly bigger house Nick wanted to buy next used to cost 130K, but if it goes up by the same % as the first one, it now costs 169K.

Nick's 42K of equity is now a 25% deposit, so he can get the mortgage on the bigger house and also get a decent rate.

Numerous variations of that theme are why millions of young homeowners now want to see prices rise.....

If you want to dissuade young people from praying for HPI, get mortgage lending back to historical norms, where a 5% or 10% deposit was enough to get a decent rate.....:)

carslet

Can't really argue with that Hamish

ruggedtoast

Lordy, prices have already risen enough haven't they?

The young have seen the boomers grow plump on HPI and are praying for the same thing to happen to them. But that train is out of gravy. Those marbles have left Athens.

Mortgage debt is a millstone around the neck of indebted youth, already burdened with student loan debt, squished by low wages and menaced by buy to let landlords.

jjlandlord

ruggedtoast wrote: »

menaced by buy to let landlords.

Hilarious :rotfl:

N1AK

Generali wrote: »

It's not always that straightforward. If you have more equity you can get a better interest rate.

It isn't. But just about anyone looking to step up the ladder, other than those in negative equity, isn't benefited by price increases.

Someone who owns a £150,000 house with £50k equity, who wants to buy a £300,000 house for example.

Currently they have ~16% deposit and need to borrow £250,000 paying £5,000 stamp duty (new system).

If prices increased 20% then they'd have £80k equity, which is a 22% deposit. They need to borrow £280,000 (£30k more) and pay £8,000 stamp duty (£3k more).

So getting 4% larger deposit on the new property will cost them ~£43k (£30k extra mortgage, £10k interest and £3k stamp duty).

If prices didn't increase they could get 4% more deposit by saving £12k, including debt paid off on current mortgage which is likely around £6k pa. So 2 years if they didn't save a penny beyond mortgage payments.

N1AK

HAMISH_MCTAVISH wrote: »

Numerous variations of that theme are why millions of young homeowners now want to see prices rise.....

A weak example, which says something as it's about as strong an example as could be made!

Firstly the first 5 years on the mortgage will pay off more 2% of the mortgage, around 20% on a 20 year mortgage. Not that I'm shocked that you'd understate it by an order of magnitude to falsely fit it to your position.

If he can afford the larger mortgage on the larger property then he can also likely increase his capital during the intervening 5 years. There's no unbiased reason to argue someone buying a property for £100k now, would struggle to step to a £130k property in 5 years if prices remained the same.

Even if your argument wasn't false. You also ignore the consequences of the change: He's also borrowing £9k more to buy the bigger house, paying more stamp duty, and paying interest on the lot. Furthermore any bigger house he wishes to buy in future also increased in value requiring him to take on even larger debts.