I've been researching mortgages for weeks and only just realised this.

SneakySpectator

Tucosalamanca said:

SneakySpectator said:

DullGreyGuy said:

Is that a repayment mortgage or interest only?

What happens if interest rates spike to 15%+ as they did in the late 70s?

It's a leasehold flat so what happens if the building suddenly needs major works? Plenty of stories of blocks having massive bills per unit, especially with ex-council where your rights to challenge costs are lower. 


In principle I ultimately agree, buying is likely to make more economic sense than renting outside of London but its not foolproof and there are plenty who stretched themselves to buy and they lost out in the long run. 

Extreme price? Pricing is relative, you may think thats extreme its about average for a good size 3 bed flat or small 2 bed house around here. By comparison the new build block of flats down the road are asking £700k for a studio or £2.5m for a 3 bed flat with poor view, the good view ones are POA

It's repayment.

Interest rates could spike but since it hasn't happened since the 70's, it's not impossible of course but probably not likely. There's a risk associated with investing in the stock market and with getting a mortgage but I don't think it makes sense not to do something because there's a small chance that a bad thing will happen. 

As for the flats, they were built in 2005 so not ancient, only 3 stories tall. I did a buildings insurance quote and was quoted £16 a month, I forget the exact details of it now but basically if the flat / block gets destroyed the insurance company will pay for me to be housed for up to 2 years, among other stuff. 

Again extreme things can happen, but extreme things tend to be unlikely so when it comes to probability, I err on the expected outcome, not the unexpected outcome.

You need to look at late eighties to early nineties, interest rates absolutely spiked (Black Wednesday as one example).
Rates dipped below 8% in 1988 but were approaching 15% in 1989
Bank Rate history and data | Bank of England Database

I purchased my first property in 1993, the housing market was a pile of ashes by that point.
1990 - 1994 was horrendous. Looking back it was the opportunity of a lifetime, discounted homes everywhere, you could buy for pennies (relatively speaking).

Great for me and people who could afford to trade up, not so great for the tens of thousands of people who were having homes repossessed.

AI view
In 1992, house repossessions in the UK reached a peak of 75,000 due to the economic downturn of the early 1990s. This period saw a significant number of homeowners lose their properties, with over 400,000 losing their homes over the decade. The high number of repossessions, particularly in 1992, had a substantial impact on the political landscape, contributing to the Conservative party's struggles with perceptions of economic competence. 

Of course anything can happen but at least I'm locking in a reasonable rate for the next 5 years now and rates are due to drop (apparently) over the next few years so could potentially lock in another low rate 5 year term. 

That already nearly halves the duration, and my salary will have increased significantly (approx 75%) over that time frame which could potentially allow me to absorb any massive uptick in inflation rates in the future ~10% or so. 

All I can do is try to plan the best I can. 

DullGreyGuy

SneakySpectator said:

Interest rates could spike but since it hasn't happened since the 70's, it's not impossible of course but probably not likely. There's a risk associated with investing in the stock market and with getting a mortgage but I don't think it makes sense not to do something because there's a small chance that a bad thing will happen. 

As for the flats, they were built in 2005 so not ancient, only 3 stories tall. I did a buildings insurance quote and was quoted £16 a month, I forget the exact details of it now but basically if the flat / block gets destroyed the insurance company will pay for me to be housed for up to 2 years, among other stuff. 

Again extreme things can happen, but extreme things tend to be unlikely so when it comes to probability, I err on the expected outcome, not the unexpected outcome.

You may want to check your history, they have spiked since the 70s. 

Secondly a "spike" is relative term, if you stretch yourself with interest rates at 2.3% and then interest rates double, as they did, many will then struggle to pay their mortgage even though its still at a very historically average rate. 

With flats, unless you are in Scotland and then it can go either way, you dont buy home buildings insurance but the freeholder buys a form of commercial property insurance known as Block (of flats) Insurance. Premiums are much higher than home insurance and are recharged to you via the service charge. 

Insurance doesnt cover wear and tear, defective workmanship or things that happen gradually over time. Our last flat was in a building put up a little under 25 years ago and the service charge there was up to £6,000 a year for a 2 bed flat (the pent houses were paying more than double) to build up a sink fund because all the windows needed replacing, the roof needed major works, the 8 lifts all needed major works and the quote for the scaffolding alone was over £1m 

Significant maintenance bills are an expected outcome on a long enough timeline. 

SneakySpectator

DullGreyGuy said:

SneakySpectator said:

Interest rates could spike but since it hasn't happened since the 70's, it's not impossible of course but probably not likely. There's a risk associated with investing in the stock market and with getting a mortgage but I don't think it makes sense not to do something because there's a small chance that a bad thing will happen. 

As for the flats, they were built in 2005 so not ancient, only 3 stories tall. I did a buildings insurance quote and was quoted £16 a month, I forget the exact details of it now but basically if the flat / block gets destroyed the insurance company will pay for me to be housed for up to 2 years, among other stuff. 

Again extreme things can happen, but extreme things tend to be unlikely so when it comes to probability, I err on the expected outcome, not the unexpected outcome.

You may want to check your history, they have spiked since the 70s. 

Secondly a "spike" is relative term, if you stretch yourself with interest rates at 2.3% and then interest rates double, as they did, many will then struggle to pay their mortgage even though its still at a very historically average rate. 

With flats, unless you are in Scotland and then it can go either way, you dont buy home buildings insurance but the freeholder buys a form of commercial property insurance known as Block (of flats) Insurance. Premiums are much higher than home insurance and are recharged to you via the service charge. 

Insurance doesnt cover wear and tear, defective workmanship or things that happen gradually over time. Our last flat was in a building put up a little under 25 years ago and the service charge there was up to £6,000 a year for a 2 bed flat (the pent houses were paying more than double) to build up a sink fund because all the windows needed replacing, the roof needed major works, the 8 lifts all needed major works and the quote for the scaffolding alone was over £1m 

Significant maintenance bills are an expected outcome on a long enough timeline. 

I was quoted a little over £16 a month for my building insurance and you're right, it's not insurance on the actual building, but rather on my individual flat inside it. For example if there was a fire and the block burned down, they will pay to rehouse me in a similar cost flat for up to 2 years I think it was. As well as content insurance bundled in, key replacement and stuff. 

But yes, no general wear and tear would be covered on the fixtures and fittings etc.

DullGreyGuy

SneakySpectator said:

DullGreyGuy said:

SneakySpectator said:

Interest rates could spike but since it hasn't happened since the 70's, it's not impossible of course but probably not likely. There's a risk associated with investing in the stock market and with getting a mortgage but I don't think it makes sense not to do something because there's a small chance that a bad thing will happen. 

As for the flats, they were built in 2005 so not ancient, only 3 stories tall. I did a buildings insurance quote and was quoted £16 a month, I forget the exact details of it now but basically if the flat / block gets destroyed the insurance company will pay for me to be housed for up to 2 years, among other stuff. 

Again extreme things can happen, but extreme things tend to be unlikely so when it comes to probability, I err on the expected outcome, not the unexpected outcome.

You may want to check your history, they have spiked since the 70s. 

Secondly a "spike" is relative term, if you stretch yourself with interest rates at 2.3% and then interest rates double, as they did, many will then struggle to pay their mortgage even though its still at a very historically average rate. 

With flats, unless you are in Scotland and then it can go either way, you dont buy home buildings insurance but the freeholder buys a form of commercial property insurance known as Block (of flats) Insurance. Premiums are much higher than home insurance and are recharged to you via the service charge. 

Insurance doesnt cover wear and tear, defective workmanship or things that happen gradually over time. Our last flat was in a building put up a little under 25 years ago and the service charge there was up to £6,000 a year for a 2 bed flat (the pent houses were paying more than double) to build up a sink fund because all the windows needed replacing, the roof needed major works, the 8 lifts all needed major works and the quote for the scaffolding alone was over £1m 

Significant maintenance bills are an expected outcome on a long enough timeline. 

I was quoted a little over £16 a month for my building insurance and you're right, it's not insurance on the actual building, but rather on my individual flat inside it. For example if there was a fire and the block burned down, they will pay to rehouse me in a similar cost flat for up to 2 years I think it was. As well as content insurance bundled in, key replacement and stuff. 

But yes, no general wear and tear would be covered on the fixtures and fittings etc.

Who did you get a quote from? The freeholder's Block Insurance will include temporary accommodation 

Newbie_John

It varies based on each property, location, salary, year..

If you had £120k cash, would it be worth buying up right? £120k in 5% savings account would make £6000 a year interests - enough to cover rent. From that point of view - is it worth buying (and absorbing all the fees, white goods, maintenance costs..) or renting?

If you don't have £120k then again you either pay bank or landlord. With a bank you sign a deal for 25+ years.

Flats also come with lease length, and if yours is approaching 100 years left then it may be expensive to extend.

A lot of bits, but it could sometimes work out better.

ACG

House prices in general do go up. Although at the moment, they are staying fairly stable and in real terms (ie after inflation) probably are losing a bit of value. 

But go and have a look at how much your mortgage will be. 
Then go and look at how much it would cost to rent the same house. 

My current house and my last house, the mortgage was half what the rent would be give or take. 

tacpot12

SneakySpectator said:

The principle amount you borrow remains the same through the length of the mortgage and doesn't increase with inflation...

The amount you borrowed doesn't change, but the amount you owe decreases through the life of the mortage (assuming you  have a repayment mortgage). 

I'm glad you have come to the realisation that buying a house with a mortgage is a great opportunity. Even though houses in the UK are very expensive, a relatively stable financial economy means that many people can afford to buy a house, and doing so provides them with stability, providing they can remain employed long enough to pay off the mortgage. 

This is why having some income protection insurance can be vital. State Benefits won't cover your mortgage if you are unemployed or become too ill to work, so having your own insurance against this (and not relying on any similar insurance that your employer might offer) can be a very wise purchase as it ensures you can continue to pay the mortgage. Buying this sort of insurance when you are young and fit, and defering the payout from the insurance for 12 months are the best ways to keep this affordable. You really need to have at least 6 months of mortgage payments saved up in an emergency fund just in case you need to claim on the insurance. This can be very hard to do, but your should try to save a little bit each month (10% of your mortgage payment amount would be ok).

You will get some sick pay if you are ill while you are working, and after 9 months of being on benefits, you can apply for a Support for Mortgage Interest (SMI) Loan. So you can probably eke out 6 months worth of payments to make it to the point you can be paid the SMI loan. You will only need this for three months if your income protection insurance starts paying you after 12 months.

Well done!

SneakySpectator

Newbie_John said:

It varies based on each property, location, salary, year..

If you had £120k cash, would it be worth buying up right? £120k in 5% savings account would make £6000 a year interests - enough to cover rent. From that point of view - is it worth buying (and absorbing all the fees, white goods, maintenance costs..) or renting?

If you don't have £120k then again you either pay bank or landlord. With a bank you sign a deal for 25+ years.

Flats also come with lease length, and if yours is approaching 100 years left then it may be expensive to extend.

A lot of bits, but it could sometimes work out better.

I saw a flat that was a 10 minute walk from where I work, they want between £125k and £130k for it, it's council tax band A and it's top floor which is absolutely essential for me (I can't take another noisy upstairs neighbour).

But it has electric heating and I've been told this is an absolute killer on the energy bill... If I could just up my deposit from £50k to £100k I'd be able to get a house which would be the dream.

Newbie_John

I've been living for many years in electric only house and don't believe it's that expensive. It can be if used incorrectly - being on night tarrif and heating during the day only. 
Storage heaters and E7 tarrif can make it as cheap as gas (if you manage to get very cheap overnight tariff). Or heat pump but initial cost can be high etc.
It really depends on the set up - many just have cheap radiators to use when you need them, and if your insulation is bad (check EPC rating) then the costs can add up.
Also depends how often are you at home, what's your comfort temperature, how warm your neighbours are.. 
On the other hand by not having gas you save on gas standing charges - £120 a year

SneakySpectator

Newbie_John said:

I've been living for many years in electric only house and don't believe it's that expensive. It can be if used incorrectly - being on night tarrif and heating during the day only. 
Storage heaters and E7 tarrif can make it as cheap as gas (if you manage to get very cheap overnight tariff). Or heat pump but initial cost can be high etc.
It really depends on the set up - many just have cheap radiators to use when you need them, and if your insulation is bad (check EPC rating) then the costs can add up.
Also depends how often are you at home, what's your comfort temperature, how warm your neighbours are.. 
On the other hand by not having gas you save on gas standing charges - £120 a year

Oh yeah I didn't think of that, £10 a month just in standing charges when I'm not even using the gas sounds criminal. 

The lease on the flat has like 900 years left, it's cheaper than the others, its council tax band A, walking distance to work, energy rating C and no boiler to repair if broken.

I'll definitely consider it.