Buying cheaper than social housing for half the country

cells

Herzlos wrote: »

That's what I was thinking. When I bought, I was paying 6% on my mortgage, which totally ruins your figures.
Sure, with interest rates at an all time low (I'm now on 2.5%), buying is cheaper than renting, but there's nothing to say they'll stay that low until it's paid off. Indeed, it's likely that when they start to rise they'll shoot up.

And that's without factoring in fees, and renovations that are covered by the social housing.

we dont really have long term mortgages in the uk but they do in the USA where 15 year fixes are about 3% and the UK and USA have similar government bonds so its reasonable to assume that if the mortgage market offered it they would not be priced so differently

The actual cost of the house (which is the interest on the loan) is actually much lower than social rents in half the country (about half as much). Most of the monthly mortgage bill is effectively a savings account that at the end of the term pays off the house

Generali

cells wrote: »

we dont really have long term mortgages in the uk but they do in the USA where 15 year fixes are about 3% and the UK and USA have similar government bonds so its reasonable to assume that if the mortgage market offered it they would not be priced so differently

The actual cost of the house (which is the interest on the loan) is actually much lower than social rents in half the country (about half as much). Most of the monthly mortgage bill is effectively a savings account that at the end of the term pays off the house

The US has Fannie and Freddie to finance long term fixes which is why the banks can offer them.

A 15 year interest rate swap is too expensive to consider without the GSEs.

Put it this way, what sort of interest rate would you want on a 15 year notice, unbreakable savings account?

mwpt

cells wrote: »

The actual cost of the house (which is the interest on the loan)

It's actually the interest on the loan + the opportunity cost of deposit + opportunity cost of the repayment portion.

cells

Generali wrote: »

The US has Fannie and Freddie to finance long term fixes which is why the banks can offer them.

A 15 year interest rate swap is too expensive to consider without the GSEs.

Put it this way, what sort of interest rate would you want on a 15 year notice, unbreakable savings account?

well seeing as how the 15 year gilt rate is 2.1% and the 10 year gilt is 1.6% I think 1% over that seems workable and were I a gilt investor I would feel a mortgage backed security (with 25% down) offered good risk adjusted value.


If it takes government intervention to get to a place where 10-15 year mortgages are priced 1% over gilts then its probably a worthwhile thing to do. The public would not only benefit from lower mortgage rates but would benefit from less transaction costs (eg not having to pay £1k to £2k every 2 years and not haivng to hire a solicitor every 2 years in a remortgage and also I suspect a lot of the public is not very mse so will just drop onto the SVR)rather than refinance)

N1AK

cells wrote: »

Average social rents are ~£385 pm PLUS THEY GO UP YEARLY
Mortgage with 10% deposit 3% interest rate.

E-Midlands & W-Midlands average terrace price is less than £90,000
25 year repayment mortgage (£384pm)

There seem to be a number of flaws in the logic of your comparison:

• Is what is received in return for mortgage payments and rent payments directly equivalent?
• Would the investment of the £10k, and any difference between rent and mortgage payments, not impact the financial comparison.

I have no intention to dismiss the claim that buying would be a better financial choice (I'm inclined to guess it is) but the analysis and assumptions here is very far short of proving that point.

N1AK

cells wrote: »

well seeing as how the 15 year gilt rate is 2.1% and the 10 year gilt is 1.6% I think 1% over that seems workable and were I a gilt investor I would feel a mortgage backed security (with 25% down) offered good risk adjusted value.

Then you're well away from the market in terms of the rate you would accept on an investment. People who actually do invest money (ie the people who you would want to fund this) wouldn't go near a 15 year investment, with risk, for 2.6-3.1%. 15 year products basically don't exist in the UK, and Barclay's offer the most competitive 10 year fix at around 3.5% factoring in a considerable upfront fee. I'd expect rates around 4-4.5%+ for a 15 year fix.

I actually agree with a lot of your idea, but I think it could be implemented more efficiently. Mortgage products that offer long-term protection could be made available. Some options might be:

• Products that are fixed for the term, but vary the term length based on underlying interest rates. If you're 30 with a 25 year mortgage then taking 30 years to pay it off isn't critical for example.
• A government "safety net" where people can get affordable mortgage rates in return for an equal amount of equity in the property or a loan.

Ideally you don't want considerable amounts of government money tied up in this kind of lending. Firstly because we'd be borrowing it and paying interest on it. Secondly because there are likely to be ways the government could spend it that would provide a better ROE, like for example efforts to help more low income households increase their incomes.

cells

N1AK wrote: »

There seem to be a number of flaws in the logic of your comparison:

• Is what is received in return for mortgage payments and rent payments directly equivalent?
• Would the investment of the £10k, and any difference between rent and mortgage payments, not impact the financial comparison.

I have no intention to dismiss the claim that buying would be a better financial choice (I'm inclined to guess it is) but the analysis and assumptions here is very far short of proving that point.

£90k terrace
£15k down (loss of £12 a month in interest in a savings account)
£75k interest only mortgage at 3% = £187 per month

So you are paying £175 in interest and losing £12 a month in interest on your deposit. The cost to the buyer is thus £199 per month. Compared to social rents of closer to double that

Of course the social rent includes some maintenance and repair. If the social rent in the area is £375 per month as long as the maintenance and repair is less than £175 a month which it will be then its better to buy than social rent

Also the greedy social landlords always put the rent up. While the mortgage stays as it is or decreases as you may over payments to pay the capital down

Graham_Devon

cells wrote: »

Also the greedy social landlords always put the rent up. While the mortgage stays as it is or decreases as you may over payments to pay the capital down

Errr, no it doesn't. It may stay the same for the short fix period, but after that it could go both up and down - though at 3% theres not much scope for it to reduce.

cells

N1AK wrote: »

Then you're well away from the market in terms of the rate you would accept on an investment. People who actually do invest money (ie the people who you would want to fund this) wouldn't go near a 15 year investment, with risk, for 2.6-3.1%. 15 year products basically don't exist in the UK, and Barclay's offer the most competitive 10 year fix at around 3.5% factoring in a considerable upfront fee. I'd expect rates around 4-4.5%+ for a 15 year fix.

I actually agree with a lot of your idea, but I think it could be implemented more efficiently. Mortgage products that offer long-term protection could be made available. Some options might be:

• Products that are fixed for the term, but vary the term length based on underlying interest rates. If you're 30 with a 25 year mortgage then taking 30 years to pay it off isn't critical for example.
• A government "safety net" where people can get affordable mortgage rates in return for an equal amount of equity in the property or a loan.

Ideally you don't want considerable amounts of government money tied up in this kind of lending. Firstly because we'd be borrowing it and paying interest on it. Secondly because there are likely to be ways the government could spend it that would provide a better ROE, like for example efforts to help more low income households increase their incomes.

If it requires the UK government to underwrite it like generali was suggesting fany and freddy mach do then so be it.

Mortgage lending for 25% down is tripple A in my eyes. People simply do not default. 1% above gilts will more than cover the defaults and risk just as 15 year fixes in america are price only about 1% above t-bills over there

cells

Graham_Devon wrote: »

Errr, no it doesn't. It may stay the same for the short fix period, but after that it could go both up and down - though at 3% theres not much scope for it to reduce.

The greedy social landlords on average always put the rent up last time I checked the national average was close to 4% a year rent increase for councils over the last 10 years.