10 years ago.....

beingjdc

neverdespairgirl wrote: »

Real terms is what matters here, though.

ISTR that in terms of average wages, the 1989 price wasn't re-gained in real terms until c.2002.

Yeah, thereabouts (in price terms here, don't know for sure what wage growth was like)
http://www.marketoracle.co.uk/images/RealHousePrices1.gif

chriz1000

I’m sorry but even working in the government sector you should be earning 40%+ compared to what you were 10 years ago, if your not then you have been taking a pay decrease every year thanks to true level deflation.
What makes me laugh is the people who sold up, or have been waiting for the right time to buy, who will most probably still end up paying more for there property than if they purchased when they were ummming and arrring about the market several years ago. Add the amount they will have paid in rent onto it and my guess is a large percentage are regretting there decision not to get on the bandwagon while things where rosy.
Hence the feeling of sour grapes amongst a select few.

beingjdc

But if you 'add the amount they've been paying in rent' then you have to subtract the amount they would have been paying in mortgage interest, and also add the amount they've made in interest from the cash that would have been their deposit!

Also, I don't know about ten years ago, but seven years ago I was earning £15,000, and I just by coincidence today saw an advert for the same job, with the same company, and they're offering £16,000.

Lotus-eater

We bought our first house in early 1998 as well, my income was £18k, the house was £57k.
Now that house is around £150k ish and my wage is £22k

My life would have been completely different if I had to buy now, completely different.

chriz1000

beingjdc wrote: »

But if you 'add the amount they've been paying in rent' then you have to subtract the amount they would have been paying in mortgage interest, and also add the amount they've made in interest from the cash that would have been their deposit!

Let’s say you have been putting £645 per month into a 5% interest account for the last 10 years, hoping prices were going to nose dive. You would have now saved £100,000! If prices were to nose dive to what they were back then, the property you looked at 10 years ago for £100,000 is now affordable without a mortgage. Great! However you will have still been having to rent somewhere at say an average of £500 per month, meaning you would have spent £1145 per month on property, all the time praying that prices would plummet.

However if instead you took out a 10 year mortgage at the same time at lets say 5% APR you would have been paying back £1079 a month and now be mortgage free. There would be no wishing and hoping for a crash needed, but even if one happened, who cares? You own the property outright.

What does this tell you? Even if you were to buy now and at the end of your mortgage your house is worth 6% LESS than what it is when you purchased it, you are still in a stronger position than if you had been renting and saving.

Remember this is a simple model, there are a lot more things to take into consideration such as the mortgage term, maintenance costs, fee’s, rent deposits etc..

beingjdc

chriz1000 wrote: »

What does this tell you?

It tells me that if you can buy a house for a mortgage where the interest portion is only £415 a month, as in your example, and it would cost you £500 a month to rent the same house, then you may as well buy somewhere. Ten years ago, that was probably a realistic example.

The reality across much of the country is now very different. We rent this place for £1,235 a month. A similar flat a few doors down is currently on the market for £315,000, so the interest portion of the mortgage would be £1,575 at 6% - a fairly average interest rate if you take into account the 'fees' on discount rates.

Even if you were to buy now and at the end of your mortgage your house is worth 6% LESS than what it is when you purchased it, you are still in a stronger position than if you had been renting and saving.

I'd prefer to look at the maths over three years, since I'm not saying it's never going to be right to buy - in three years it'll be clear where the market's going, I think. In year one, renting is going to save* us £340 a month, or about £4200 including interest - slightly more if you factor in the costs of groundrent, service charges, etc, but never mind. I'll give you rent inflation of 4% a year, though this year our rent was held constant, so in year two we save only £290 a month, and in year three £240 a month. The buyer will start having a better cashflow in year nine, by my maths.

By the end of year three, we are £10,000 better off than the person who bought. If house prices have gone up, obviously we will need to spend that money. If they have fallen by 6% (and, again, the derivatives markets where people put their money where their mouth is are saying 15%), then we can buy that flat for 'only' £296,000, and we will be a total of just under £30,000 better off than if we bought it today.

*Assuming, obviously, that we could get a mortgage for the slightly over five times our joint income that the above flat would cost to buy anyway.

beingjdc

Sorry to resurrect this thread, but I just came across a great example which illustrates what I was saying about rents being totally out of line with house prices. If I were looking to move, I'd quite like to live in this 2-bed cottage, which is to rent for £230 a week:

http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=1&pid=584137&agentid=01854

The owner is obviously open to sale or rent, as here it is again for sale for £350k.

http://www.findaproperty.com/displayprop.aspx?edid=00&salerent=0&pid=819087&agentid=01854

Let's imagine that in the current climate I could get it for £325k.

By my maths, an interest only mortgage at 6% would cost me £375 a week. So the difference in what I can save is a whopping £630 a month, or over £7000 a year. To live in the same place.

At rental inflation of 4% a year, the renter will begin paying more than the buyer sometime in late 2022, however at that stage the renter will have accumulated (with compound interest at 5%) £89,500 in cash.