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CPI of 1.5% vs HPI of 1% and effect of leverage
johnathan45
Posts: 79 Forumite
I didn't want to hijack the other thread by discussing it any further.
https://forums.moneysavingexpert.com/discussion/6069372/estate-agent-25k-reduction-after-a-month
Just wanted to add that the actual loss is leverage*(borrowing rate minus house price increase). If your house price increase(1%) is anything less than your borrowing rate, you are actually incurring a loss.
For a typical mortgage with a leverage of 5 and a mortgage interest of 2%, the actual loss is 5*(2%-1%) = 5%
If you are first time buyer with a larger leverage(lets say 10) and high interest (2.5%) mortgage, your situation is even worse:10*(2.5%-1%) = 15%
All of this before taking inflation of +1.5% into account! Not to mention, FTSE all share index has given a return of +5% in the same time period.
https://forums.moneysavingexpert.com/discussion/6069372/estate-agent-25k-reduction-after-a-month
Just wanted to add that the actual loss is leverage*(borrowing rate minus house price increase). If your house price increase(1%) is anything less than your borrowing rate, you are actually incurring a loss.
For a typical mortgage with a leverage of 5 and a mortgage interest of 2%, the actual loss is 5*(2%-1%) = 5%
If you are first time buyer with a larger leverage(lets say 10) and high interest (2.5%) mortgage, your situation is even worse:10*(2.5%-1%) = 15%
All of this before taking inflation of +1.5% into account! Not to mention, FTSE all share index has given a return of +5% in the same time period.
0
Comments
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Interesting, probably won`t be information too many on here will want to hear but really just underlines how much HPI (and healthy transactions) are needed to keep the whole thing going IMO.0
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