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boony

If I'm Buying With A Mortgage, Should I Buy Now?

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When I finally decide to buy a house again I'll definately need a mortgage to do so. I'm not sure if that puts me in a minority on here or not, but I just want to run something past you to get your input.

I've been doing some calculations to look at the effect of rising interest rates on a theoretical house purchase assuming a mortgage is required to buy it.

Imagine a house was at peak priced at £250,000 and has seen a 20% drop, down to £200,000.

If I have £50,000 to put down that leaves me with a mortgage requirement of £150,000.

If we assume I could fix it for 25 years at 5% (I know I can't, but please bear with me), I worked out that would be £876 per month, total repayment being £262,800.

Now lets look what happens if we assume I could wait another year or 2 and see another 20% drop but interest rates rise and I have to take 8%.

Price drops to £160,000 so I only need £110,000 mortgage.

If we assume I could fix it for 25 years at 8%, I worked out that would be £886 per month, total repayment being £265,800.

So, even though the price has dropped significantly, the higher interest rates mean I end up paying more.

I know these numbers are flawed, but the point I'm trying to make is that people who are going to rely on a mortgage to buy their home, not only need to worry about calling the bottom of the house market, but also getting in before interest rates sky rocket.

Thoughts?

Edited by boony

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When I finally decide to buy a house again I'll definately need a mortgage to do so. I'm not sure if that puts me in a minority on here or not, but I just want to run something past you to get your input.

I've been doing some calculations to look at the effect of rising interest rates on a theoretical house purchase assuming a mortgage is required to buy it.

Imagine a house was at peak priced at £250,000 and has seen a 20% drop, down to £200,000.

If I have £50,000 to put down that leaves me with a mortgage requirement of £150,000.

If we assume I could fix it for 25 years at 5% (I know I can't, but please bear with me), I worked out that would be £876 per month, total repayment being £262,800.

Now lets look what happens if we assume I could wait another year or 2 and see another 20% drop but interest rates rise and I have to take 8%.

Price drops to £160,000 so I only need £110,000 mortgage.

If we assume I could fix it for 25 years at 8%, I worked out that would be £886 per month, total repayment being £265,800.

So, even though the price has dropped significantly, the higher interest rates mean I end up paying more.

I know these numbers are flawed, but the point I'm trying to make is that people who are going to rely on a mortgage to buy their home, not only need to worry about calling the bottom of the house market, but also getting in before interest rates sky rocket.

Thoughts?

Your figures aren't flawed - they're a reasonable rationale on which to calculate the figures. Your calculations illustrate the dilemma - that although prices may drop when interest rates rise those rises can easily cancel-out any predicted gain.

The answer would be easy if prices continue to fall with low interest levels continuing - and I'm sure there are some dogmatic people on here who will not only say this is what's going to happen but will berate anyone who disagrees with their viewpoint.

It's a tough one - and a dilemma I've previously identified. My personal view remains - there is no point in entering the property market at this point. Once the effects of QE have worn off the journey down will continue. With rising interest rates and a continuing fall in prices there may come a point at which property becomes a no-brainer - but we ain't there yet.

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When I finally decide to buy a house again I'll definately need a mortgage to do so. I'm not sure if that puts me in a minority on here or not, but I just want to run something past you to get your input.

I've been doing some calculations to look at the effect of rising interest rates on a theoretical house purchase assuming a mortgage is required to buy it.

Imagine a house was at peak priced at £250,000 and has seen a 20% drop, down to £200,000.

If I have £50,000 to put down that leaves me with a mortgage requirement of £150,000.

If we assume I could fix it for 25 years at 5% (I know I can't, but please bear with me), I worked out that would be £876 per month, total repayment being £262,800.

Now lets look what happens if we assume I could wait another year or 2 and see another 20% drop but interest rates rise and I have to take 8%.

Price drops to £160,000 so I only need £110,000 mortgage.

If we assume I could fix it for 25 years at 8%, I worked out that would be £886 per month, total repayment being £265,800.

So, even though the price has dropped significantly, the higher interest rates mean I end up paying more.

I know these numbers are flawed, but the point I'm trying to make is that people who are going to rely on a mortgage to buy their home, not only need to worry about calling the bottom of the house market, but also getting in before interest rates sky rocket.

Thoughts?

It's a thoughtful analysis, but your point that you can't fix for 25 years is actually really important.

Redo the maths with a 3 year fix and then 22 years at the same percentage in both cases (whatever that may be, SVR, new fix at 8%, whatever) and you're better off waiting I would say.

Plus your deposit could grow whilst you don't buy.

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It's a thoughtful analysis, but your point that you can't fix for 25 years is actually really important.

Redo the maths with a 3 year fix and then 22 years at the same percentage in both cases (whatever that may be, SVR, new fix at 8%, whatever) and you're better off waiting I would say.

Plus your deposit could grow whilst you don't buy.

I posted on another thread yesterday - I found ONE 25 year fix at 5.98%. And that was with big deposit.

However I don't think 25 year fixed move as much as 3 or 5 year fixes for good reason so for that reason maths in flawed.

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When I finally decide to buy a house again I'll definately need a mortgage to do so. I'm not sure if that puts me in a minority on here or not, but I just want to run something past you to get your input.

I've been doing some calculations to look at the effect of rising interest rates on a theoretical house purchase assuming a mortgage is required to buy it.

Imagine a house was at peak priced at £250,000 and has seen a 20% drop, down to £200,000.

If I have £50,000 to put down that leaves me with a mortgage requirement of £150,000.

If we assume I could fix it for 25 years at 5% (I know I can't, but please bear with me), I worked out that would be £876 per month, total repayment being £262,800.

Now lets look what happens if we assume I could wait another year or 2 and see another 20% drop but interest rates rise and I have to take 8%.

Price drops to £160,000 so I only need £110,000 mortgage.

If we assume I could fix it for 25 years at 8%, I worked out that would be £886 per month, total repayment being £265,800.

So, even though the price has dropped significantly, the higher interest rates mean I end up paying more.

I know these numbers are flawed, but the point I'm trying to make is that people who are going to rely on a mortgage to buy their home, not only need to worry about calling the bottom of the house market, but also getting in before interest rates sky rocket.

Thoughts?

Thoughtful and precise post...to which IMHO there really is no answer.

Personal circumstances are paramount, worrying that the need to 'get in before interest rates skyrocket' is perceived as an issue.

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Why would anyone want to pay £312,800 in hard earned cash for something they have agreed is only worth £200k?

Do you know how to get to your nearest mental health hospital?

Edited by threetimesdead

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When I finally decide to buy a house again I'll definately need a mortgage to do so. I'm not sure if that puts me in a minority on here or not, but I just want to run something past you to get your input.

I've been doing some calculations to look at the effect of rising interest rates on a theoretical house purchase assuming a mortgage is required to buy it.

Imagine a house was at peak priced at £250,000 and has seen a 20% drop, down to £200,000.

If I have £50,000 to put down that leaves me with a mortgage requirement of £150,000.

If we assume I could fix it for 25 years at 5% (I know I can't, but please bear with me), I worked out that would be £876 per month, total repayment being £262,800.

Now lets look what happens if we assume I could wait another year or 2 and see another 20% drop but interest rates rise and I have to take 8%.

Price drops to £160,000 so I only need £110,000 mortgage.

If we assume I could fix it for 25 years at 8%, I worked out that would be £886 per month, total repayment being £265,800.

So, even though the price has dropped significantly, the higher interest rates mean I end up paying more.

I know these numbers are flawed, but the point I'm trying to make is that people who are going to rely on a mortgage to buy their home, not only need to worry about calling the bottom of the house market, but also getting in before interest rates sky rocket.

Thoughts?

You can get a 5 year fix for around 5%. Five year gilts yield 2.98% at the moment, and 25 year gilts yield around 4.45%, so you could maybe expect to get a 25 year fix at around 6.5%. It is not necessarily the case that a rise in short term rates will lead to a similar rise in long term rates.

Of course, 25 year fixes are very rare. The most you can normally expect to be able to fix for is 5 years, and you still face much the same position for rates in the remaining 20 years whether you fix now or fix later.

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You can get a 5 year fix for around 5%. Five year gilts yield 2.98% at the moment, and 25 year gilts yield around 4.45%, so you could maybe expect to get a 25 year fix at around 6.5%. It is not necessarily the case that a rise in short term rates will lead to a similar rise in long term rates.

Of course, 25 year fixes are very rare. The most you can normally expect to be able to fix for is 5 years, and you still face much the same position for rates in the remaining 20 years whether you fix now or fix later.

What is the margin now and what was it 3 years ago?!

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Why would anyone want to pay £312,800 in hard earned cash for something they have agreed is only worth £200k?

Do you know how to get to your nearest mental health hospital?

The alternative to paying mortgage interest is to pay rent. If interest is cheaper than rent, it is sensible to consider buying the property. At the moment though it probably isn't, especially when you consider that rent covers landlord's expenses for insurance, repairs etc that you would otherwise have to pay for in addition to your mortgage interest.

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The alternative to paying mortgage interest is to pay rent. If interest is cheaper than rent, it is sensible to consider buying the property. At the moment though it probably isn't, especially when you consider that rent covers landlord's expenses for insurance, repairs etc that you would otherwise have to pay for in addition to your mortgage interest.

Why don't you answer the question?

You have agreed it is worth £200k

Why become an idiot and pay £312? And this is not your retirement pad.

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Lets look at your core scenario.

Prices fall, rates rise, end result more expensive housing costs.

So... are you saying that the market can bear an increase in the cost of housing?

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Why don't you answer the question?

You have agreed it is worth £200k

Why become an idiot and pay £312? And this is not your retirement pad.

You have a choice to either borrow now to buy the place and pay off the loan, or rent while saving up the money to buy the place for cash.

Either option is going to cost you more than £200k. You have to decide which option is cheaper.

At the moment, I'm renting and saving up, but I don't anticipate saving the entire purchase price of the place I buy in a few years time when we hit bottom.

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You have a choice to either borrow now to buy the place and pay off the loan, or rent while saving up the money to buy the place for cash.

Either option is going to cost you more than £200k. You have to decide which option is cheaper.

At the moment, I'm renting and saving up, but I don't anticipate saving the entire purchase price of the place I buy in a few years time when we hit bottom.

Future Trading up is where you deceive yourself today and your calculations all the time

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You have a choice to either borrow now to buy the place and pay off the loan, or rent while saving up the money to buy the place for cash.

Either option is going to cost you more than £200k. You have to decide which option is cheaper.

At the moment, I'm renting and saving up, but I don't anticipate saving the entire purchase price of the place I buy in a few years time when we hit bottom.

clearly if prices are falling its worth waiting, if prices are rising its worth buying before they go up more.

only if prices are totally static then its worth looking at the rent vs mortgage interest. another factor once you have saved a reasonable amount is that interest on the savings get taxed, so because of that if prices were static need to look at:

at the outset with no savings you are looking at:

rent vs mortgage interest

once you have saved a reasonable amount:

rent less net interest income received vs mortgage interest

this means that the more you save the more advantageous buying becomes

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