Mortgage rates rise for second time in days

Pez2

pickles110564 wrote: »

How do you know that they have not purchased at 30% below current value.

If they did then they don't have to worry, as long as they're not on a short term fix. Most people don't buy houses at 30% below market value.

LillyJ

GavP wrote: »

If it's your dream home and nothing else like it will come up for years and years, and you can realistically afford it, then buy. I've always said that.

I'm talking from the point of view of money saving, and having a 'dream home' is almost by definition not money saving.

The best moneysaving thing to do would be to live in a studio flat with your kids kipping on the floor and eat cold beans for every meal. It would save me money, but seeing as I only live once, that is not what I aspire to.

(PS I know some people are forced to live like that and that is sad - and why I agree with social housing - but if I can afford to live in better conditions, then I don't see what is so awful about that)

Pez2

LillyJ wrote: »

The best moneysaving thing to do would be to live in a studio flat with your kids kipping on the floor and eat cold beans for every meal. It would save me money, but seeing as I only live once, that is not what I aspire to.

(PS I know some people are forced to live like that and that is sad - and why I agree with social housing - but if I can afford to live in better conditions, then I don't see what is so awful about that)

But the point is that many people could save money by waiting. It doesn't mean they should. Some people might have reasons why they can't or don't want to wait. Some people might be like your Dad and be comfortably off enough that money saving isn't as important. We all have different priorities in life.

WTF?_2

The whole 'Dream Home' thing is a bit of a red herring.

Thanks to property !!!!!! programmes, people seem to think that any kind of vaguely nice house in a half decent area is a must-have 'dream home' (it has sash windows / period features / think of the possibilities to stamp your own identity on the house.... blah blah).

Most people out there are on the property ladder. That means using your money sensibly to move up towards a really good house later in life. Borrowing a large amount of money to buy a house at prices near to the peak of one of the biggest housing bubbles ever, just as the economy is set to take a nosedive is not using your money sensibly.

LillyJ

Money saving is important whether you are well off or not. My mum is the biggest bargain hunter there is. That is probably why they are well off! My Dad is also obsesssed with savings; many of his friends who earn(ed) similar amounts spend their money on new cars every 2 years, expensive diamonds jewellery, etc. My mum would go mad if my dad did that! So they have more savings than I will ever be able to dream of (working for the NHS and all!). He works very hard indeed for his money, and has retired at 50 because of it. He is lucky yes, but also determined, hard working and has an excellent work ethic.

However a home for your children is something important to them, the house isn't extravagant, it is just the area which means the price is so high. They have passed their "nesting" instincts on to me and that is why I am buying a house now. In 20 years time when my kids are teenagers, I hope to be like my dad, struggling to remember the "crash of 07"!

setmefree2

!!!!!!? wrote: »

The point I'm getting across is that lower interest rates just make it possible for you to service the debt more easily. It's still more debt. It still has to eventually paid back with the interest added on.

Hi !!!!!!?

It's not "just making it possible for you to service the debt" is it - It is real money. You will see from my signature that I am a MFW - so I also see my mortgage as debt. So to me the REAL COST of a house is what you pay for it in the open market PLUS the interest you pay on it for however long you borrow the money. So if you borrow £100,000 at 6% over 25 years, the ACTUAL cost of the house is £193,290.

Thus, there are 3 ways to pay less for your house.
1) Pay less at the outset (market value)
2) Get a low interest rate
3) Pay off your mortgage (POYM) within the 25 year term.

There is a balance between the 3.

INTERST RATE

If I borrow £100, 000 @ 5% costs £175, 377 (£1.75377 * £100,000)

If the market falls and interest rates rise 1% I pay the same
£90,732 @ 6% costs £175,377 (£1.9329 * £90,732)

At a 2% rise in interest rates
£82,713 @ 7% costs £175,377 (£1.75377 * £82,713)

So the MV of the house falls but interest rates rise - the ACTUAL cost to the buyer is the same.

TERM

You can shorten the term (or make overpayments). This, will have a big impact on the real cost of your house but (obviously) interest rates will still have an impact.
£100000 Paid back in 10 years at 5% costs £127,278
£100000 Paid back in 10 years at 6% costs £133,225
£100000 paid back in 10 years at 7% costs £139,330


Lower house prices are good for FTB as they can get a foot on the ladder which has become out of reach (providing they have a deposit now) but in the end if mortgage rates are high they could well end up paying a higher price in ACTUAL COST (vs market value)

Think that's right.

All the Best

SMF2

WTF?_2

setmefree2 wrote: »

Hi !!!!!!?

It's not "just making it possible for you to service the debt" is it - It is real money. You will see from my signature that I am a MFW - so I also see my mortgage as debt. So to me the REAL COST of a house is what you pay for it in the open market PLUS the interest you pay on it for however long you borrow the money. So if you borrow £100,000 at 6% over 25 years, the ACTUAL cost of the house is £193,290.

Thus, there are 3 ways to pay less for your house.
1) Pay less at the outset (market value)
2) Get a low interest rate
3) Pay off your mortgage (POYM) within the 25 year term.

There is a balance between the 3.

Look at your own "Three ways to pay less for your house" and (2) and (3) are quite possible to achieve if you bought at a time of low prices but high rates.

However, buy at a time of high prices and low rates - entailing borrowing more capital - and (2) and (3) are very unlikely to happen:

* You can overpay in the high rate environment to make a significant reduction on the capital and make a very big dent on the amount of interest you pay ths shortening the term of the mortgage considerably. Not so easy and effective to do that when the capital owed is much higher and the interest rates are lower.

* You can refinance later on when interest rates drop and credit loosens if you borrowed at a time of high rates. Borrow lots of money at a time of low rates and you will be in trouble further down the line when your fix is up and rates have risen. Get a tracker at times of low rates because the payments look affordable and you'll be hammered when they rise.


Really, if you are borrowing cash to buy then it's a no brainer to choose to buy at a time of higher rates but lower prices. Buying at a time when you need to borrow lots of money but can get it 'cheap' just leads to you getting into a stickier and stickier situation unless rates stay low for 20/25 years. Highly unlikely IMO.

setmefree2

Hi !!!!!!?

All good points. However, you would have to agree that some one who borrowed £100k (say at 6%) last summer is no worse off than somone who buys this year at £90k (a 10% drop) with a rate 1% higher - 7%. I don't think his/her financial situation would be any more insecure in the next few years since the person who bought last summer will be paying £650 pm and the person buying this year is also paying £650 pm for their repayments.


SMF2

neverdespairgirl

!!!!!!? wrote: »

After a bust, people's memories of it preventing them from repeating the same stupid mistake. Until of course time has passed and a new generation comes 'on line' and it all starts again.

Those who do not learn from history are bound to repeat it.

neverdespairgirl

IveSeenTheLight wrote: »

Very true, however the amount of lenders competing for your mortgage was also not the same.

At the moment, many seem to be competing to get rid of the punters, not attract them.