House buying risks

Ramouth

getmore4less said:

• Typically, mortgages were arranged over 25 years, but high house prices and stringent affordability tests have led to borrowers extending their repayments over a longer period, even though over the course of the mortgage they will pay much more in interest.

lets put some real word context around that.

Back in the day before the 90s) when 25 years was the norm the standard measure was your home would cost double the price over 25years with the interest

That's when rates were hovering above 6% the interest total would trend toward 100%+

amount	rate	payment	owing	interest
£100,000.00	6.00%	£644.30	£0.00	£93,290.42

now they are closer to 2.5% the interest on a 25y is <40%

amount	rate	payment	owing	interest
£100,000.00	2.50%	£448.62	-£0.00	£34,585.02

Even over 40years its only ~60%

amount	rate	payment	owing	interest
£100,000.00	2.50%	£329.78	-£0.00	£58,293.55

There are going to be some that have averaged there rate even lower and will see total interest over live of their loans under 50% of cost even if they go long.

the reality is going long you will still pay less interest than those that took out those typical 25y terms back in the day 

even when you factor in you have to pay more for the same you pay a lot less interest over 25y

amount	rate	payment	owing	interest
£100,000.00	6.00%	£644.30	-£0.00	£93,290.42
£143,619.57	2.50%	£644.30	-£0.00	£49,670.86

if you extend to 40 you still pay less interest than those old days when 25y was typical.

amount	rate	payment	owing	interest
£143,619.57	2.50%	£473.63	-£0.00	£83,720.94

Love these calcs you do!  Really informative!

I think we also need to consider that some people will be taking out a longer term mortgage because monthly outgoings are more important to them then overall cost.  Buying is generally cheaper and more secure than renting.

getmore4less

Ramouth said:

getmore4less said:

• Typically, mortgages were arranged over 25 years, but high house prices and stringent affordability tests have led to borrowers extending their repayments over a longer period, even though over the course of the mortgage they will pay much more in interest.

lets put some real word context around that.

Back in the day before the 90s) when 25 years was the norm the standard measure was your home would cost double the price over 25years with the interest

That's when rates were hovering above 6% the interest total would trend toward 100%+

amount	rate	payment	owing	interest
£100,000.00	6.00%	£644.30	£0.00	£93,290.42

now they are closer to 2.5% the interest on a 25y is <40%

amount	rate	payment	owing	interest
£100,000.00	2.50%	£448.62	-£0.00	£34,585.02

Even over 40years its only ~60%

amount	rate	payment	owing	interest
£100,000.00	2.50%	£329.78	-£0.00	£58,293.55

There are going to be some that have averaged there rate even lower and will see total interest over live of their loans under 50% of cost even if they go long.

the reality is going long you will still pay less interest than those that took out those typical 25y terms back in the day 

even when you factor in you have to pay more for the same you pay a lot less interest over 25y

amount	rate	payment	owing	interest
£100,000.00	6.00%	£644.30	-£0.00	£93,290.42
£143,619.57	2.50%	£644.30	-£0.00	£49,670.86

if you extend to 40 you still pay less interest than those old days when 25y was typical.

amount	rate	payment	owing	interest
£143,619.57	2.50%	£473.63	-£0.00	£83,720.94

Love these calcs you do!  Really informative!

I think we also need to consider that some people will be taking out a longer term mortgage because monthly outgoings are more important to them then overall cost.  Buying is generally cheaper and more secure than renting.

take the OP 

He can buy a 3 bed place for the cost of the rent on his studio on a repayment basis.
The term is no longer relevant it's cheaper than renting and will stay that way.

In 6 months he can save a years worth of mortgage payments even a temp job loss is well covered.
If he got a lodger that 6 months of savings would have over 5 years covered.






 

Crashy_Time

getmore4less said:

Crashy_Time said:

getmore4less said:

Crashy_Time said:

Keswick1uk said:

Crashy_Time said:

How are things progressing OP, what has your son decided to do?

He's looking at the market and the villages close by to work out his next step. Deciding areas he'd like to live and those with kerb appeal for resale. Plus areas where you can navigate without it being like a dodgems at the weekends. And where the buses run close ish too.

Apparantly, many more instructions are appearing daily on his rightmove searches - were 2 or 3 a day and now up to 10, so he's watching what is happening generally too. He's started to look at sold prices as well, as they get released on net prices (something like that). 

He's secured another years rent with no increase, so that's a temporary win too. He's found out he's likely to be able to borrow circa 162k.

So not much further on but he's content doing his thing.

Is he using PropertyLog to keep an eye on seller psychology?

Propertylog is broken costs £1.99pm to fix it.

Seems to be working again.
https://www.propertylog.net/

Still broken.
https://www.propertylog.net/why-is-the-price-history-blurred

I can still see it, obviously haven`t used it enough yet, great tool for price and rent drops though.

Crashy_Time

BikingBud said:

Mickey666 said:

BikingBud said:

Mickey666 said:

I'd far rather risk being a 'mortgage prisoner' for 25 years than being a 'rent prisoner' for my entire life and have nothing to show for it.

But it's not only 25 years now, it's 30/35 years and with massive deposits now required many can't meet these rates. 

What do you mean by "many"? 

from: https://www.theguardian.com/money/2021/mar/10/uk-40-year-fixed-rate-mortgage-habito-deposit-loan

• Typically, mortgages were arranged over 25 years, but high house prices and stringent affordability tests have led to borrowers extending their repayments over a longer period, even though over the course of the mortgage they will pay much more in interest.

Also from: https://www.unbiased.co.uk/life/homes-property/what-s-the-longest-mortgage-term-you-can-get-in-the-uk

• There are now many lenders who offer mortgages longer than 25 years, with the longest readily available being 40 years. As of March 2020, lenders of 40-year mortgages include Halifax, Nationwide, Leeds Building Society and Yorkshire Building Society.

And https://www.yourmoney.com/mortgages/first-time-buyers-pay-40-more-for-longer-mortgage-terms/

• More first-time buyers are taking out long-term mortgages to lower their monthly repayments, even though this increases the total amount repaid over the life of a mortgage, analysis has found.
• Low mortgage rates mean repayments as a share of take-home pay are close to a historic average, according to Nationwide. However, in 2020, around 70% of first-time buyers took out a mortgage with an initial term of over 25 years, up from 45% in 2010.
• At the end of 2020, the first-time buyer house price to earnings ratio stood at 5.2, close to 2007’s record high of 5.4, but well above the long run average of 3.7.

or: https://www.independent.co.uk/money/mortgage-debt-coronavirus-house-prices-costs-b689516.html

• Expect to still be paying off your mortgage in old age, homeowners warned.
• One in five borrowers won’t have cleared their mortgage debt before retirement, as rising house prices and later first-time purchases push back the age Britons free themselves from housing costs.
• Despite hopes to be clear of the monthly payments by the time we hit 60 – two years later than we anticipated this time last year – a growing number of homeowners don’t think they’ll be mortgage free until well into their 70s.  

Is that enough?

And of course when mortgage rates rise and new borrowers can`t secure such low rates the value of the asset they are in debt for will be falling as well.

MobileSaver

Crashy_Time said:

And of course when mortgage rates rise and new borrowers can`t secure such low rates the value of the asset they are in debt for will be falling as well.

Do you think this will happen any time this year?

mrlegend123

Inflation will continue to increase - Get those rates up!!!
Canada has already pre-warned borrowers to expect higher rates.....
Exciting times for borrowers who have maxed out 

Mickey666

BikingBud said:

Mickey666 said:

BikingBud said:

Mickey666 said:

I'd far rather risk being a 'mortgage prisoner' for 25 years than being a 'rent prisoner' for my entire life and have nothing to show for it.

But it's not only 25 years now, it's 30/35 years and with massive deposits now required many can't meet these rates. 

What do you mean by "many"? 

from: https://www.theguardian.com/money/2021/mar/10/uk-40-year-fixed-rate-mortgage-habito-deposit-loan

• Typically, mortgages were arranged over 25 years, but high house prices and stringent affordability tests have led to borrowers extending their repayments over a longer period, even though over the course of the mortgage they will pay much more in interest.

Also from: https://www.unbiased.co.uk/life/homes-property/what-s-the-longest-mortgage-term-you-can-get-in-the-uk

• There are now many lenders who offer mortgages longer than 25 years, with the longest readily available being 40 years. As of March 2020, lenders of 40-year mortgages include Halifax, Nationwide, Leeds Building Society and Yorkshire Building Society.

And https://www.yourmoney.com/mortgages/first-time-buyers-pay-40-more-for-longer-mortgage-terms/

• More first-time buyers are taking out long-term mortgages to lower their monthly repayments, even though this increases the total amount repaid over the life of a mortgage, analysis has found.
• Low mortgage rates mean repayments as a share of take-home pay are close to a historic average, according to Nationwide. However, in 2020, around 70% of first-time buyers took out a mortgage with an initial term of over 25 years, up from 45% in 2010.
• At the end of 2020, the first-time buyer house price to earnings ratio stood at 5.2, close to 2007’s record high of 5.4, but well above the long run average of 3.7.

or: https://www.independent.co.uk/money/mortgage-debt-coronavirus-house-prices-costs-b689516.html

• Expect to still be paying off your mortgage in old age, homeowners warned.
• One in five borrowers won’t have cleared their mortgage debt before retirement, as rising house prices and later first-time purchases push back the age Britons free themselves from housing costs.
• Despite hopes to be clear of the monthly payments by the time we hit 60 – two years later than we anticipated this time last year – a growing number of homeowners don’t think they’ll be mortgage free until well into their 70s.  

Is that enough?

I wasn't doubting that 35+ year mortgages were available, I was more interested in how many people were taking them on and what sort of people were taking them on.

I personally wouldn't want to take on a 40 year mortgage, but then I'd always aimed to retire early and home ownership was a key objective to achieve that aim, as also seems to be the case with the many MFW threads on here.

The interesting thing about longer term mortgages is that it's a bit of a chicken-and-egg situation.  We know that a 40 year mortgage will have lower monthly repayments than a 25 year mortgage but is that a reflection of house prices being higher and therefore less affordable, or is it a reflection that so many more people want to buy their own home but could previously not afford the repayments of a 25 year mortgage and would therefore have previously been 'locked out' of the house buying market?  

These long term mortgages will open up the market to a flood of new buyers who previously could not afford to buy, thereby increasing demand and putting upward pressure on house prices . . . . which puts pressure on lenders to offer longer term mortgages . . . which makes monthly payments cheaper . . . which means more people can afford to buy . . . which pushes up prices . . . etc, etc.    Makes it even harder to see where a price crash is going to come from when demand is increasing

But where are all these new FTBs living at the moment?  Presumably they're renting at present . . . so what happens to the rental market as renters are increasingly able to get these more affordable long term mortgages?  For someone faced with a lifetime of renting anyway, a 40 year mortgage is presumably no big deal.  Except, IT IS a big deal because the monthly payments on a 40 year mortgage will be cheaper than their rent, so it's even more of a 'no brainer' to buy rather than rent.

So as more people move into buying and out of renting because of cheaper monthly payments, the rental market must surely see a downward pressure on rents, which coupled with an upward pressure on property prices is going to make the rental business even more precarious than it already is.

Interesting times!

Mickey666

mrlegend123 said:

Inflation will continue to increase - Get those rates up!!!
Canada has already pre-warned borrowers to expect higher rates.....
Exciting times for borrowers who have maxed out 

. . . and also for retired outright home owners sitting on their pension pots that have seen low growth over recent years.  A bit of inflation might be just the thing to boost their fortunes - both their pensions AND their house prices

Aliliva

Ramouth said:

Love these calcs you do!  Really informative!

I think we also need to consider that some people will be taking out a longer term mortgage because monthly outgoings are more important to them then overall cost.  Buying is generally cheaper and more secure than renting.

Not only this - but most people will get a very long term to lower the "fixed" monthly costs, but then overpay whenever they can. And obviously, the mortgage debt will decrease with time, while your average FTB will see their income increase whilst their career progresses.
When I bought my flat a few years ago, I maxed out on my borrowing and so I had to apply for a very long term (30 years). This helped me keeping the running costs low for the first 6 months, while I was furnishing the place, but then I set up a SO and have been overpaying to reduce the term ever since. Fast forward three years, a re-mortgage and a couple of job promotions, and I'm currently paying less than 25% of my take home salary every month for a 2 bed London flat and my "theoretical" term (i.e., if I keep up with the overpayments) is less than 20 years.

Crashy_Time

mrlegend123 said:

Inflation will continue to increase - Get those rates up!!!
Canada has already pre-warned borrowers to expect higher rates.....
Exciting times for borrowers who have maxed out 

The PTB REALLY want their inflation this time, and seem to be getting it! Covid has really shaken the money masters it seems?
People sitting on big piles of mortgage debt are going to start to feel very uncomfortable if things start moving up.....