BCR approaching 100%

chucknorris

Generali wrote: »

Cheers. I skim these HPC threads at best.

Me too, I knew what it meant, but I had forgotten the exact meaning.

westernpromise

Jason74 wrote: »

But if someone is starting from today, the idea of taking on less debt at a higher rate after a crash is not in itself silly logic, even if in practice they are likely to be wrong simply because the premise that rates will rise soon is likely to be flawed.

Indeed, but the problem of course is that if you aren't bought in and you wait for an interest rate hike to deliver a price fall, the ultra cheap 10-year deals aren't available to you at that point.

Someone who bought on a lifetime tracker at BoE plus 0.25% in 2008 is still ahead of someone who bought 20% cheaper in 2010. Probably.

The other point is that to work out someone's BCR you add the difference between the rent they've paid and the mortgage payments they would have made to whatever the mortgage balance now is. This tells you what they each will spend in total to own the house. Whatever interest rate costs apply, they are both equally exposed from the point where the speculative renter buys back in.

dktreesea

cells wrote: »

Thats a good point renters should do a NPV of their rent from now until death and consider that as a debt.

Most likely the NPV of the rent would be a bigger debt than taking on a mortgage at least in the majority of places in the uk

That's a good idea, except that many renters have parts or all of their rent paid for by housing benefit. So while they are forgoing the potential tax free capital gain from buying a home, they may be living in a home far beyond their means to buy for much less than the market rent for that home.

westernpromise

That's also somewhat true of renters generally. The cost of renting a house is usually lower than that of buying it assuming a typical mortgage - in the early years of the mortgage anyway.

dktreesea

westernpromise wrote: »

That's also somewhat true of renters generally. The cost of renting a house is usually lower than that of buying it assuming a typical mortgage - in the early years of the mortgage anyway.

I would have said the cost of renting a comparable house may be cheaper, especially if subsidised, than the cost of buying. It's not just the mortgage interest that counts. It's also the cost of the interest forgone on the investment of capital.

HornetSaver

dktreesea wrote: »

I would have said the cost of renting a comparable house may be cheaper, especially if subsidised, than the cost of buying.

But therein lies the problem. We have subsidies for low-to-average-earning people who happen to have a rare condition most commonly known as "having had a kid in the last 18 years".

This distorts the housing market by allowing people to live in houses beyond their means. So we bring in a whole raft of subsidies and schemes to help average-earning people have some sort of prayer of being able to buy a house, so that over their lifetimes they'll pay less for housing than if they had rented. Subsidies and schemes from which I am going to use, despite my belief that they should not really exist.

Indeed, they wouldn't exist, if at any point over the past decade and a half someone in a position of power and influence sat back and asked "why is it no longer possible for average-earning people in large swathes of the country to rent or own average housing in that part of the country without state support?"

Mistermeaner

Gordon browns fault

mwpt

I worked out my BCR. Unless I've done something wrong, my spreadsheet shows the following values for the first five years. This is for the house I own, bought just shy of two years ago:

Crash required
1%
6%
10%
15%
19%

This shows the percentage in value the house has to fall by in order for my total equity to equal what my total equity would be had I remained renting.

I'm a little surprised. This is more precarious than I thought it would be.

Btw, unlike the original poster, I actually assigned some value to the the initial equity required to buy a house, rather than assuming I'd put it in a hole in the back garden (of my rented house). I assumed 4% returns on this equity pa. I assumed HPI of 4% since that appears to be roughly what my area is running at. I assumed rent increases of 2% pa, roughly what I think SW London appears to run at.

Crashy_Time

Aww...HPC Thread of the Week has closed (surprised this little Troll Nest is still open actually) so I`ll pop the latest thing to excite the HPC faithful here.......http://www.housepricecrash.co.uk/forum/index.php?/topic/208974-our-17-properties-will-lose-l16000-per-year/page-3#entry1102906914


Lot`s of great comedy in the article.

Crashy_Time

Pity most of you can`t join the discussion though........:sad: :rotfl: