[Deleriad]

Redhat Sly, on 27 October 2010 - 05:27 PM, said:

My cousin bought another house in June.

Him and his wife were renting a 4/5 bed farmhouse with a large garden in a lovely quiet spot for £600 a month - the type of house they think they could never afford to buy. It was about 2 miles from his 4 kid's school, had good broadband and he works from home using the internet. I kept telling him he had a superb deal. He had just spread the £70k cash from the house sale (@£130k) across a couple of saving accounts and a few shares and had no intention of buying another house for the foreseable future. Then his wife spotted a house for sale, suggested they view it and they finished up buying it.

The paid £166k for a 3 bed semi in Moray. It took every penny they had to such an extent that the £2k arrangement fee was added to the mortgage. This was at 5 times his real salary (he included other things on the mortgage application). Now he is disappointed with the size of the house they bought compared to where they were renting. At least one of the two Moray airbases are closing so he thinks house prices will drop in the area - negative equity is beckoning. He is on a 2.89% mortgage for 2 years. He is hoping interest rates aren't rising in 2012....

These figures look odd to me. He had 70k in the bank and bought a house for 166K with a mortgage of about 100k. The 100k is 5times his salary which is therefore 20k and on that 20k he is supporting a wife and 4 kids. Previously they were paying 600 per month to a rent a place now they are 2,890 per year in mortgage interest (about 240 per month). Even assuming another £60 per month in insurance and maintenance on average then his interest repayments are 1/2 what he was paying in rent. Once you figure in capital repayments his mortgage (100k over 25 years) repayments are about £470. So his monthly outgoings on the most basic level have gone down by about £100 per month. He may have had other new expenses but the shift from renting to paying a mortgage has seen him swap from paying £600 per month to a landlord to 240 per month to the bank.

Obviously, house prices may fall significantly in which case he would have been better off waiting and he's lost the interest and/or any return on his shares. But on the figures in front of me, he seems to have smaller monthly outgoings now than he did while renting.

[fflump]

Deleriad-I could not have put it better myself ;-)

As an aside, I am surprised in this credit-restricted era that you can just "include other things on the mortgage application" in order to get a 5X mortgage!

[fflump]

Agentimmo, on 27 October 2010 - 04:21 PM, said:

I used Repayment because that's what most people think about when they compare to renting.
Not correct, but that's the reality.
As for the "you own after 25yrs"...that assumes you stay in the same place for the 25yrs. In that case, buying may be better than renting. If you get married, have kids, change job, lose your job, retire etc , you may decide to move up/down the ladder. Costs involved in every move. If you rent, you remain flexible. I changed jobs 3 times in 4 years and moved to a better paid post every time. Would have been more difficult had I been a houseowner.
Not saying one is better than the other, but need to knock the old EA mantra "renting is dead money" on the head.

I think you're taking the "own after 25 yrs" too literally. Of course you may move etc but the point is you are buying £250k of housing stock and locking it in at 2010 levels and paying it up to 2035. Whether that it s good move or not is a matter of debate-2013 may be infinitely preferable but few would argue that in 2035 prices will be a lot higher.

The real problem arises if you never buy-in 2035 rents will be a lot higher than today and blowing all your meagre pension on rent would be a pretty c r a p existence. The skill in the current downturn will be having the balls to call the bottom and take the plunge when all around have lost faith in the housing market!

[oligotroph]

you missed the loss in interest from the 70K in savings

The lower outgoings are probably the reason they jumped, but they may live to regret that when they want to try and move up in a few years with no deposit left.

[fflump]

oligotroph, on 27 October 2010 - 07:06 PM, said:

you missed the loss in interest from the 70K in savings

The lower outgoings are probably the reason they jumped, but they may live to regret that when they want to try and move up in a few years with no deposit left.

if but maybe. A 40% in nominal prices would be needed for that to happen. Probably a 50% drop in real terms. An unlikely scenario IMO-though doubtless occurs many times a night in the dreams of HPCers :-)

What is more worrying is that he is not happy with the place theyve bought-I mean-did someone put a gun to his head? Come on man-grow a pair!

If they wanted to reduce outgoings they could have rented a cheaper place FFS.

[ccc]

Deleriad, on 27 October 2010 - 06:33 PM, said:

These figures look odd to me. He had 70k in the bank and bought a house for 166K with a mortgage of about 100k. The 100k is 5times his salary which is therefore 20k and on that 20k he is supporting a wife and 4 kids. Previously they were paying 600 per month to a rent a place now they are 2,890 per year in mortgage interest (about 240 per month). Even assuming another £60 per month in insurance and maintenance on average then his interest repayments are 1/2 what he was paying in rent. Once you figure in capital repayments his mortgage (100k over 25 years) repayments are about £470. So his monthly outgoings on the most basic level have gone down by about £100 per month. He may have had other new expenses but the shift from renting to paying a mortgage has seen him swap from paying £600 per month to a landlord to 240 per month to the bank.

Obviously, house prices may fall significantly in which case he would have been better off waiting and he's lost the interest and/or any return on his shares. But on the figures in front of me, he seems to have smaller monthly outgoings now than he did while renting.

A few good points but not sure.

(1) He has smaller monthly outgoings. This cost him a 70k investment.

(2) Average maintenence per year of £700 quid ? That may be fine for the 9 years out of 10. However in year 10 when theyre is a bill for 14k it changes it all a little. I think your maintenence figures are mega optimistic.

(3) The interest payments you use are based on a 2 year fix - during the period of history of lowest interest rates ever.

Now I am not saying this person made a good or a bad decision. However if prices crash in that area - and the chances they could big style - then I think it could turn out to be a seriously bad move. Time will tell. Although as Sly says - he has stretched himself to the extreme. That is a big red warning signal to me.

[ccc]

kenzdawg, on 27 October 2010 - 04:40 PM, said:

Actually, this has already happened. Back in 2003, I think, a waitress got killed by falling masonry in a city centre cafe. After the public inquiry Edinburgh Council decided they might be liable if they didn't take action, the result being a blizzard of statutory notices of repair on city properties. A bonanza for masons, an ****-covering exercise for the council and home-owners left with the bill.

I personally got stung for £8k, rather unnecessarily if you ask me (but then no one did!). I was fortunate enough to be able to pay it out of my capital at the time, but my neighbour, a classic buy to let mug who seemed to spend his MEW on holidays and kitchens, had to sell up the next year.

Now if I see a building with peeling stonework I assume it's got an undismissed statutory notice against it, and that future owners will have a massive liability hanging over them.

Remember that. My Sis knew the bird who was killed. Aussie girl IIRC.

I am sure I also read something recently that a lot of the New Town sandstone in Edinburgh is at 'that age' where it is all giong to need a lot of work as well.

Will have a google.

[ccc]

Old article but pretty interesting.

Stone

"The worst-hit areas in the capital are understood to be Marchmont, Gorgie, parts of Morningside, Abbeyhill and Leith."

"The Scottish House Condition Survey looked at 30,000 properties and found that the repair bill for privately-owned homes was £5 billion, with council and housing association flats making up the rest."



That money is just not available for repairs. Not since HPI has stopped anyway. This is going to be a huge story in the next few years IMO. With the high house prices paid for these places there can't be much left for massive bills that must be coming to these places.

Just imagine if more and more of these started to happen. Word got around. That 250k Marchmont flat could fall in price massively very very quickly.

Is it reasonable to get a full stone survey on an entire building if you buy a flat in it ? What sort of money are we talking about here for a proper survey by an expert ? And I assume you would have to ge the whole building done to make it worthwhile.

[Democorruptcy]

Deleriad, on 27 October 2010 - 06:33 PM, said:

These figures look odd to me. He had 70k in the bank and bought a house for 166K with a mortgage of about 100k. The 100k is 5times his salary which is therefore 20k and on that 20k he is supporting a wife and 4 kids. Previously they were paying 600 per month to a rent a place now they are 2,890 per year in mortgage interest (about 240 per month). Even assuming another £60 per month in insurance and maintenance on average then his interest repayments are 1/2 what he was paying in rent. Once you figure in capital repayments his mortgage (100k over 25 years) repayments are about £470. So his monthly outgoings on the most basic level have gone down by about £100 per month. He may have had other new expenses but the shift from renting to paying a mortgage has seen him swap from paying £600 per month to a landlord to 240 per month to the bank.

Obviously, house prices may fall significantly in which case he would have been better off waiting and he's lost the interest and/or any return on his shares. But on the figures in front of me, he seems to have smaller monthly outgoings now than he did while renting.

I think he probably does have smaller outgoings paying the mortgage instead of rent. I'm just a bit worried he has stretched himself too far but more importantly for the wrong house. He does website design and his salary isn't guaranteed.

I don't think that basing a purchase on immediate outgoings because interest rates are at a 300 year low is a good idea. If he had a 10 year fix at a slightly higher rate I would feel better about it. Once he had decided to buy I suggested he got as long a fix as possible for peace of mind (probably more my mind than his!). Time will tell about interest rates.

There are 6 of them. The farmhouse had 4 large bedrooms, a study (he works from home remember) and a dining room. Now he has 3 bedrooms. His outgoings maybe a little less but he has a lot less house. One of the main drivers for selling his house was to get some acres. The house he has bought has the same size garden as the one he sold. He has since seen a 4 bed with study and 11 acres go quite quickly for £185k and wishes he had hung on for that, though the kids would have had to move school as it was 15 miles away.

Incidentally the mortgage is in the 90k's and he was worried he wouldn't get it but Lloyds offered him £115k. I think I mentioned that at the time in another thread on here.

(Edited after finding the brochure for the £185k house)

This post has been edited by Redhat Sly: 28 October 2010 - 08:15 AM

[guitarman001]

Haven't read the rest of the replies. Two things stand out to me:

-The prices quoted are still ridiculously high.
-The speed of the sale is worrying, resembling the 'good' times when people would buy almost without checking a place out - worrying.

[guitarman001]

Secretary at my old work on below £20k has one of those new-builds up at Gorgie; paid a hell of a lot for it. I couldn't believe it when you compare the price of the place to her salary - can't imagine she's too pleased now.

[fflump]

ccc, on 27 October 2010 - 08:33 PM, said:

Old article but pretty interesting.

Stone

"The worst-hit areas in the capital are understood to be Marchmont, Gorgie, parts of Morningside, Abbeyhill and Leith."

"The Scottish House Condition Survey looked at 30,000 properties and found that the repair bill for privately-owned homes was £5 billion, with council and housing association flats making up the rest."



That money is just not available for repairs. Not since HPI has stopped anyway. This is going to be a huge story in the next few years IMO. With the high house prices paid for these places there can't be much left for massive bills that must be coming to these places.

Just imagine if more and more of these started to happen. Word got around. That 250k Marchmont flat could fall in price massively very very quickly.

Is it reasonable to get a full stone survey on an entire building if you buy a flat in it ? What sort of money are we talking about here for a proper survey by an expert ? And I assume you would have to ge the whole building done to make it worthwhile.

Yes it is an old article and things have moved on substantially since then. 2005-2009 the council swept through the whole of Bruntsfield and Marchmont inspecting stone work and slapping statutory notices on any tenements with defective/crumbling stonework/chimneys/roofs. In what was a bonanza for stone masons and scaffolders alike works were springing up everywhere-there were times in 2007 when half of bruntsfield place was scaffolded up. I was living in Bruntsfield at the time but my stair was OO and we had regular maintenance program and just got stung for £600 for a piece of chimney/roof that 4 stairs were jointly responsible for.

Anyway, suffice to say Marchmont and Bruntsfield has largely been done and risks of more big repairs lower than elsewhere. They were done first because the residents are wealthier and easy meat compared to Gorgie and other areas like fountainbridge. I don't know whether the council has been through Gorgie yet.

[Agentimmo]

fflump, on 27 October 2010 - 07:04 PM, said:

I think you're taking the "own after 25 yrs" too literally. Of course you may move etc but the point is you The real problem arises if you never buy-in 2035 rents will be a lot higher than today and blowing all your meagre pension on rent would be a pretty c r a p existence. The skill in the current downturn will be having the balls to call the bottom and take the plunge when all around have lost faith in the housing market!

Rents usually follow wages. In 2035, the ratio will be approx the same as today. As it was in 2000 / 1990 / 1980 etc.
I agree that calling the bottom will be difficult. But buying at today's still bubble-inflated prices on a SVR that is at a historic low, is still a big risk (madness, even.)
I bought in 1996. But rented for the 8 years previous to that date as HPI was rampant. Wouldn't have a problem renting in the future - especially if I can get a 3 bed flat for 30% less than the current mortgage would cost per month.

[Scunnered]

ccc, on 27 October 2010 - 08:33 PM, said:

Old article but pretty interesting.

Stone

Here's a more recent article on the same subject, from June this year: Leaving no stone unturned to mend crumbling homes (already discussed here, here (although the link doesn't seem to go to quite the right place)).

This post has been edited by Scunnered: 28 October 2010 - 09:40 AM

[Agentimmo]

Quote

He is on a 2.89% mortgage for 2 years. He is hoping interest rates aren't rising in 2012....

Has he calculated how much his monthly repayment will be when he switches to a SVR in 2 yrs time?
If his bank force him onto a 5 or 6% rate, I suspect he may be toast.....................
They are not called "Teaser Rates" for nothing.