vzzzbx

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About vzzzbx

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  1. I'm wondering if this is going to be the straw that broke the camel's back. Once investors start demanding a normal, healthy above-inflation return on their investment in US government debt, which is supposed to be the safest possible investment class, everything else has to go up too. Why would you loan anyone else cash if it's more risky than loaning it to the US government and is also paying a lower rate? It causes a cascade of other things to happen. Rates go up across the board. Taking it further, this puts stress on other areas of the system which could be enough to make them go pop. It also calls into question those other highly indebted countries like the UK, so could force up the government's cost of borrowing. This could cause a loss of confidence in the UK's ability to repay its debts without having to fire up the printing press to inflate it all away. But that simply means investors will demand a higher yield to make sure that doesn't happen. You then have to look at the UK banks. Why bother lending out cash on mortgages to get a measly 2-3% return (below inflation), when they could simply lend it to the US government for 10 years and get 4%? So the UK government could struggle to raise the funds they need to keep going. This might force them to look very carefully at what they're spending their cash on. Anything that isn't essential could face the chop, including such things as stupidly extravagent mortgage guarantee schemes that put them right in the firing line if/when house prices go pop. I think it will be interesting, to say the least. Once the herd is spooked, even governments can't control the markets.
  2. Barclays Bans Interest-Only Mortgages

    How come interest-only mortgages are only banned for people buying the house to live in? If it's such a risk to loan on an interest-only basis, surely that should also apply to interest-only buy-to-let mortgages? At least I assume it only applies to owner-occupiers. Somehow the rules always seem to be different for buy-to-let.
  3. And yet the mystery still remains of where the money is coming from to pay for all these price rises. Last time I looked, people's salaries weren't getting any bigger. Looks like it's more and more magic money. Sooner or later, it's all got to come crashing down. The question remains is whether any of us will still be around to benefit from it.
  4. Not sure I agree that everything on the high street is doomed. Sure it's easier and cheaper to get a lot of things online - try getting bits for your desktop computer from the high street and you'll see what I mean. However some products simply don't translate well into the online world. Take shoes for instance - they might look good but you really do need to try them on before buying. Even if they have your size in stock, they still might be uncomfortable when you're wearing them. You also still need a post office to be able to post back stuff you bought online that you don't want or isn't right. Then there's the endless coffee shops and cafes. You've been able to make yourself a cup of coffee or a sandwich at home for years yet they show no sign of disappearing any time soon. Plus there's the hassle of the useless, useless delivery companies used by the likes of Amazon etc. who don't seem to realise that Mon-Fri between 9am and 5pm isn't a good time to try delivering stuff to your house. Deliver it to work you say? Sure - I'm sure your employer would really like a washing machine delivered to their reception area. If Domino's pizza can deliver in the evenings why can't the likes of Parcel Force? And without a dammed surcharge, darn it!
  5. FINALLY! The immediate question that springs to my mind is: why wasn't this done a lot sooner? Also the story doesn't seem to mention any hard definitions of "applicants must satisfy lenders that they can repay a mortgage", so maybe Reckless Lending Bank Plc could still set up really crappy risk policies and lend to anyone able to fog up a mirror. But at least it does say something about Eric's favourite LIAR LOANS. About time they were thoroughly banned and actually should be made illegal with both the borrower and lender facing jail time, in my opinion.
  6. I've been making something similar too, except mine is designed for predicting your future costs based on assumptions you enter. One thing I'd say that's hard to compensate for is inflation. If you take a figure of 5% for inflation, then £500 in rent today costs more than £500 in 6 months time. At least in theory. Actually it depends on when/if you get a pay rise. If that's in 3 months time, then the last 3 months rent of £500 are easier to handle than before the pay rise. I notice your spreadsheet doesn't factor inflation into the costs of renting, but does take it into account on the buying side. Another factor pointed out to me on another thread is the ability to overpay a mortgage, which can mean sometimes it's better to buy now and overpay the mortgage than wait then buy. Also it's interesting to note that if you assume 5% inflation and 4% mortgage interest, the mortgage company is actually losing money giving you a mortgage. Sure they're losing it slower than if they didn't give the mortgage, but they're still losing cash.
  7. Ahh but what happens when the banks have rebuilt their balance sheets enough so that they can afford to pull the plug on people in arrears in much greater numbers? I don't for a moment assume the current amounts of forbearance is the banks being helpful to borrowers out of the goodness of their hearts. I much prefer the explaination that there's a solid financial reason they're choosing this course of action. Maybe the banks are just biding their time. After all, I assume it must cost quite a bit in up-front fees for a bank to be able to repossess a house, market it, find a buyer and get all the paperwork sorted out. Long-term it's better for the bank to do that, but short term it hits their costs. If the bank's already teetering on the edge of bankruptcy it's probably best to do what they're doing - string things along for a while to build up their reserves until they can afford to pull the plug at a later date. One thing's for sure, if the slow drops accelerate and become a stampede of folks trying to cash out before they lose everything, it's going to be highly entertaining viewing for all here on HousePriceCrash. I predict many smug posts from the people here along the lines of "told you so!". Music to my ears, I would say. The real icing on the cake would be for some of those TV property "experts" being wiped out. If that happened, I'd laugh long and hard. Schadenfreude anyone?
  8. Then I would say that this shows that even if one tries to stack the deck in favour of their preferrred answer (that the "new paradigm" of higher house prices is sustainable), reality still comes in to mess things up and show you up for an idiot. As to further house price rises, it looks like there's not much else left to move over from the "interest" side of the total mortgage cost to the "original loan" side. So short of some more crazy lending, higher incomes for everyone or more people with incomes per household buying together, those numbers don't look like they've got much ability to go any higher. Sometimes it pays to argue against what you think to be true. Here I tried to find some way to justify the estate agent / deluded seller view and failed. I'm glad I did. It would be worrying if there was some way to make the numbers stack up. This whole site wouldn't be worth much if it really was a one-off "paradigm shift".
  9. It's true there's some fairly obvious flaws in the assumptions - that the interest rate would remain the same for the entire 25 year term being the biggest. It's an oversimplification I used to help pose the original question. The point of the post was intended to show some sort of crazy logic to the idea of higher house prices being sustainable. (Not that I think they are, I should add). I suppose if you assumed that interest rates can't go up significantly for the next 10-25 years and shut your eyes, run quickly over the shaky assumptions with your fingers in your ears going "LA LA LA", you might come to the conclusion that it's kinda sustainable. Why was I trying to justify current prices? Mostly so that I can have a rock-solid comeback pointing out why they're not sustainable when I hear stuff like this spouting from the mouths of those who are hoping that prices don't drop any more. The other one you often hear is that apparently women have suddenly started working in the last 10 years (!) so therefore now that there's two incomes available to pay the mortgage instead of one, it justifies a doubling in house prices. I leave that one as an exercise to those so inclined to point out how ridiculous a statement this is.
  10. Here's an interesting conundrum to pose: Late 1990's style scenario: Income: 20k/year House price: 65k Price/income ratio: 3.25 Deposit: 6.5k Mortgage interest rate: 10% Monthly mortgage payment: £531 Total paid over entire 25-year mortgage term inc. deposit: £165,976 Theoretical current day(ish) scenario (i.e. not entirely the same as today's reality, more of a thought experiment): Income: 25k/year House price: 120k Price/income ratio: 4.8 Deposit: 12k Mortgage interest rate: 3.2% Monthly mortgage payment: £523 Total paid over entire 25-year mortgage term inc. depost: £169,035 Did you notice that the total paid over the whole mortgage term is about the same in both scenarios? Also note the monthly payments. Nearly the same. However look at the headline price of the house: 120k vs. 65k. Surely the 120k price must be too high! Look at the price-to-income ratio - even though the monthly payments and overall mortgage cost over 25 years are nearly the same, one is clearly much higher than the other. So the question to ask ourselves is: does the house-price-to-income ratio really give us a reliable way to measure whether a house is too expensive or not? Or more generally: If the overall cost of owning a house over a 25 year mortgage term is X, part of X is the initial loan amount and part of it is interest. Today's lower interest rates mean that the share of X taken up by interest has reduced. Does this then mean that the headline price of a house can increase and have no effect on overall affordability? I'm wondering if some of the clever folks the frequent this forum can point out any obvious flaws to this argument...
  11. Indeed you could save or overpay while paying a mortgage, but that wasn't the point I was trying to make. It was simply to show the fallacy of the statement that "renting is always dead money", when clearly it isn't. However, in the illustration probably I should have put the following disclaimer: "The following situation assumes that you're working your ar$e off giving up all sorts of things to get the deposit you need for the house. It further assumes that this is unsustainable in the long term and that once you get the mortgage, you'll not be overpaying on it." However, for the doubters, allow me to present option 5: "the whole in the house way with 1 year renting" You wait one year renting at £900 per month After 1 year, you have a £56k deposit (as per option 2) You get a 20% loan-to-value mortgage of £224k at 3.84% This gives a monthly mortgage payment of £1191 over 24 years But you overpay by 2500+900-1191=£2209 each month (again ignoring early repayment charges) The total payment for the whole mortgage term is £251,965 paid in 6.18 years Added to your £56k deposit and 1 year's rent of 900x12=£10,800 you've paid £318,765 for your house Compared to the "whole in the house way" method that Mayalabeille described earlier which costs £316,110. So a difference of £2,655 in favour of Mayalabeille's option. However, I've not counted the fact you get a lower mortgage interest rate on an 80% loan-to-value mortgage than on a 90% one, neither have I counted the 1 year's interest you'd earn on the deposit fund, nor the fact that house prices are slowly drifting lower at the moment. Even a 1% drop in prices over a year would be worth £2800 on it's own, which would still mean that waiting a year and renting actually saves you money. All of which goes back to my (badly explained) main point that GIVEN THE RIGHT CIRCUMSTANCES, renting is not "dead money".
  12. Not sure I'd go so far as to say it's manipulating the figures. It's more like saying "given this set of parameters, this is the result". Sure - it's certainly possible to overpay and it does save cash. My original illustration assumed a (hopefully more realistic) situation where people save like crazy for a few years for a deposit, then ease back afterwards because the cash is needed for other things such as insurance, repairs, holidays, kids, pension savings, replacing rust bucket cars and the like. But yes, if you're hell-bent on paying off the mortgage as fast as possible then the calculations show it's cheaper to get a place now and overpay on it. Even then it might not be so clear-cut because of early repayment charges. My main motivation for the post was to show those folks who continually trot out the "renting is dead money" mantra that it's not so clear-cut and will depend on the circumstances. So maybe the title should more accurately have been "Renting is sometimes dead money, sometimes not".
  13. No problem, all constructive criticism welcomed! Yes, you probably could move to a better monthly rate after a while. But then so could scenario 2. What I was trying to do was to give a relatively straightforward argument that lots of people can understand. Perhaps that's not possible with mortgages, but it's worth a try.
  14. Admittedly not many people. Maybe I should make a spreadsheet so people can put their own numbers in to see how much they'd save. In any case, I think this is a strong case for compulsary teaching of financial literacy in schools. There's far too many people don't do calculations like this before taking the plunge.
  15. We always hear people telling you that "renting is dead money". All that is, except people on this site. So for your edification (and a convenient page to point the doubters to), I present a fully worked example of when renting can save you money against a mortgage. Enjoy! The situation: You want to buy a house costing £280k and prices aren't rising You have a deposit saved up of £37k You're currently renting a place for £900/month You can save £2500/month while renting Option 1: buy now You put down a deposit of £28k (10%), holding back £9k for fees, repairs, emergencies etc. You get a 90% loan-to-value HSBC fee-free mortgage of £252k @ 3.84% This gives a monthly mortgage payment of £1,308 over 25 years The total payment for the whole mortgage term is £392,396 Added to your £28k deposit you've paid £420,396 in total for your house Option 2: rent one year then buy After 1 year, your deposit fund is now 2500x12+37000=£67k You put down a deposit of £56k (20%), holding back £11k for fees, repairs, emergencies etc. You get a 80% loan-to-value HSBC fee-free morgage of £224k @ 3.29% This gives a monthly mortgage payment of £1126 over 24 years The total payment for the whole mortgage term is £324,246 Added to your £56k deposit and 1 year's rent at £900/month you've paid £391,046 in total for your house Summary: Option 1 total cost = £420,396 Option 2 total cost = £391,046 Meaning option 2 saves you £29,350 total and means your mortgage payments are £182/month cheaper. For one year's "dead money" renting, that's quite a lot of cash you've saved! Conclusion: Renting isn't always "dead money". And I've not even counted the extra interest you'd earn investing your deposit fund for one year (3% of £37k = £1,110) and the fact that in this case you'd have an extra £2k in your emergency fund.