quick calcs

neas

I did some quick calcs for my own personal situation.

Assumptions (for comparison purposes)

• Interest Rates are the same (and fixed for the term of the mortgage... i.e you remortgage to a fixed every 5 years... don't kill me on this one but these calcs are meant to be a simplistic view and I cant predict the interest rates)
• A conservative drop of 15% in house prices occurs after 2 years
• Over 2 years my partner and I manage to save an additional 15k for a deposit

Scenarios:

1: Buy house now valued 120,000

Interest Rate: 5.54%
House cost: 120,000
Deposit: 20,000
Mortgage: 100,000
Monthly Repayment: 620.79


2. Buy the same house after a 15% drop over 2 years... combined with the fact We've saved more for a deposit.

Interest Rate: 5.54%
House Cost: 102,000
Deposit: 35,000
Mortgage: 67,000
Monthly Repayment: 620.79


Starting the 'clocks' in 2008... Scenario 1 completes payment in 2033
Scenario 2 completes in 2022 (12 year term vs 25 year term)

So... by waiting 2 years and saving a deposit even for a decline of 15%... I've shaved 11 years off my completion time.


Finally people argue that renting is dead money. So again my scenario

Compare renting for 2 years and saving the difference in mortgage payment Versus paying 2 years into a mortgage fund

Same stats as before:

Mortgage Costs

Interest Rate: 5.54%
House cost: 120,000
Deposit: 20,000
Mortgage: 100,000
Monthly Repayment: 620.79
Capital repaid after 2 years: 3924.00

Rental Costs

Monthly Rental Payment: 495.00
Costs saved by not paying for maintenance on a house : Unknown but not neglible
Mortgage difference saved per month: 125.79
Savings earned by saving difference for 2 years (5% interest rate): 3249

Difference after 2 years mortgage vs renting:

3924-3249 = £675



So... by waiting two years im 'wasting' £675 ... but if my choice pays off I save THOUSANDS.... essentially paying my mortgage off 10 years earlier than if I'd have made the plunge now.


Just a 15% saving combined with saving 15k over 2 years will allow me to save approx £60,000 over the course of the mortgage!.

Who can dare say I'm silly for doing this, even if interest rates rise they'd need to rise to 10% just to offset the reduction/wait.

This is my reasoning for saving and waiting... I don't like giving money away and buy a house now would be like loosing 60,000 pound instantly.... just people aren't clued up enough to bother think about things like this.

adr0ck

your figures seem about right neas

i just can't see houses at the £120K level falling in price to £102K though

yet i have been proven wrong before

neas

they've rose up just as much as other houses.. if not more. They used to be 50k houses 8 years ago... now they are 130-150k houses.

WTF?_2

Fantastic figures Neas, well done for posting them as they give people a very good idea of why now is not the time to buy if you are at all serious about getting value for money.


Ever noticed that the 'doom mongers' are the ones who post sources and costed out figures whilst the 'head in the sand brigade' usually just resort to accusing them of being angry, bitter, doom-mongering etc. with nothing other than glib assertions to back up the 'I see no crash' viewpoints ?

PasturesNew

When you buy a house I'd say (house age/size depending) that £100/month isn't a bad figure to put in for maintenance/repairs.

But when I owned a house I also had:
- buildings insurance
- gas boiler insurance
- water/drainage insurance

Those would be another £40/month I'd say.

adr0ck

neas wrote: »

they've rose up just as much as other houses.. if not more. They used to be 50k houses 8 years ago... now they are 130-150k houses.

problem is at the £120K price level you will be competing against buy to letters

WestonDave

I'm confused (easily done!) If you can save £15k over two years whilst renting, and renting is only £3k cheaper over the same period what happens to the other £12k?

Having a play with this on fool.co.uk (apologies if you feel that is overstepping the mark!) using the £12k as a £500 per month overpayment, and assuming that continued to term (no reason why it shouldn't unless one of you gave up work say for a family) you'd finish the mortgage worst case in 9.5 years and I make the difference between scenarios just £5k. (Total interest in scenario 1 £28k, scenario 2 total interest of £11k plus £12k rent = £23k so just £5k difference in the dead money (rent or interest))

Of course that doesn't factor in the fact I personally think prices will drop more than 15% given the major contraction in lending and may not change your decision but with it being much closer someone else in your shoes might have a different outlook. For what its worth I wouldn't be a FTB in the current climate all things being equal.

Cue me having missed something obvious!

m00m00

of course it's possible for 120k house to drop down that much


18th Feb 2008

• Price changed: from '£114,950' to '£109,950'

8th Feb 2008

• Price changed: from '£124,950' to '£114,950'

that's a 15k drop there, (and it's not a new build, new builds are too easy, it's like shooting fish in a barrel)

adr0ck

m00

thats asking prices

find me 15% falls in selling prices at lower end of market (i.e. £120K)

thats what neas is after

m00m00

and asking price drops don't feed into lower selling prices ?


12-24 months ago, it wasn't rare for property to sell for ABOVE initial asking price.

neas

The 15k savings were a rough 'guess' of what I could save with my partner in 2 years.

Yes it pays to overpay a mortgage... but you wouldn't fuel the entire mortgage with all your cash. I'll play with the figures and see what I can come up with, I was more posting

If i took the worst case of applying that 15k over the 2 years (6.8k adjusted for 5% interest gain from having 15k in savings).

Then I would still complete 5 years By waiting