Will the average homebuyer ever win?

greggymagic

Whether you see houseprices rising or falling, doesn't it always seem that the average homebuyer is in a lose lose situation?

Some people hope houseprices will carry on going up and up whilst others are praying for a crash to pick up a bargain...but my question is this.... If there is a 25 percent reduction in houseprices (and I say IF because I don't want to make any predictions either way) but at the same time interest rates keep rising the way they seem to be....are we (joe Public) ever going to be better off? Or is it just the banks that ever win?

I'm probably not making myself clear but say a house 2 years ago was worth 220k and you borrowed 200k at 4.5%... your repayments would be around 1120 pounds a month.

Now if house prices go down by 25% (as some people are hoping/praying for) to 165k.... but interest rates keep going up to say 7.5 percent (which is only about 1.5 percent higher than what the banks are offering at the moment) the repayments on the "now 25% cheaper" house will still be around 1120 pounds a month. So is anyone better off?

Would people be happier a) buying a house for 220k with a low interest rate or b) buying a house for 165K with a higher interest rate even though in the end it might cost you exactly the same?

PasturesNew

You'd owe less capital though. So stand a better chance of paying it off early. Or making a dent in it through an unexpected windfall.

If you borrowed £200k you've got to pay that back at some point
If you only borrow £150k that's £50k less you've got to find.

setmefree2

Hi

I see you are a newbie, so welcome:D There is a balance between house price falls and rising interest rates as you suggest. I think every 1% rise in interet rates over the life of a mortgage is the equvialent of a 8-9% drop. IMHO, at the moment it would appear that the drop in house prices will be great enough to more than make up for the rise in interest rates over the life of a mortgage. If you are a FTB, get a good price for your house/flat. Make sure you have a good deposit to get the best interest rate. Change your deal whenever you need to over the life of your mortgage, and if possible try to pay off your mortgage early. The quicker you pay of your mortgage the cheaper your house will be (Visit the Mortgage Free Wannabe board for inspiration)

Reds-on-Sea

Totally see what you're saying here - I've been thinking the very same recently myself and number crunching to see what comes out. I figured that at around £200k, a 1% rise in interest rate is roughly equal to a £20k drop in house price.

Yes, interest rates do seem to go up as house prices come down but in answer to your question it'd be safer (in the long run) to buy low and pay a high interest rate (despite my very self having just done the opposite! - well, somewhere in the middle anyways!) purely for the fact that your monthly repayments are unlikely to get very much higher at any given point, they're more likely to go down in fact - whereas if you're paying a low rate and shelling out £1120pm, and interest rates go up, say 5%, you're then paying around £1600pm. Ouch. Yes, you start off paying loads of interest comparatively, but as PasturesNew pointed out, you owe less capital and will probably pay off quicker.

WTF?_2

greggymagic wrote: »

Whether you see houseprices rising or falling, doesn't it always seem that the average homebuyer is in a lose lose situation?

Some people hope houseprices will carry on going up and up whilst others are praying for a crash to pick up a bargain...but my question is this.... If there is a 25 percent reduction in houseprices (and I say IF because I don't want to make any predictions either way) but at the same time interest rates keep rising the way they seem to be....are we (joe Public) ever going to be better off? Or is it just the banks that ever win?

I'm probably not making myself clear but say a house 2 years ago was worth 220k and you borrowed 200k at 4.5%... your repayments would be around 1120 pounds a month.

Now if house prices go down by 25% (as some people are hoping/praying for) to 165k.... but interest rates keep going up to say 7.5 percent (which is only about 1.5 percent higher than what the banks are offering at the moment) the repayments on the "now 25% cheaper" house will still be around 1120 pounds a month. So is anyone better off?

Would people be happier a) buying a house for 220k with a low interest rate or b) buying a house for 165K with a higher interest rate even though in the end it might cost you exactly the same?

It's never really 'easy' to buy a house.

Low interest rates mean high prices. Lower prices usually only accompany high interest rates and high deposits.

High deposits ... well, SAVE. It's good for your financial health and having cash in the bank is always a good thing.

However, you are always better off borrowing less to buy a given property. Even if the interest rate is high, you can remortgage when the rate drops in the future.

On the other hand, if you pay a load of money because interest rates are low, credit is easy and prices are high then it's likely rates can only go higher and your loan can only become harder to pay off.