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Buying At The Start Of A Crash

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I read a post the other day where it was suggested that saving 500 quid a month over the next 5 years to use as a deposit would be a good way to go about getting on the property ladder, ie to wait until house prices reduce over a prolonged period, as seems likely, and then make your move to buy with a bigger deposit when prices are more affordable. A landlord meantime would be benefiting during the 5 years but you would not, other than eventually accumulating an additional 33,000 quid inc interest.

If you can afford it, consider this scenario;

Using the type of mortgage in the link below, your account balance, wages, savings, etc are adjusted daily and then deducted from the principle owed before interest is calculated.

So based upon having a 15% deposit for a 195000 house, and using this calculator, http://www.oneaccount.com/onev3/calculator...-detailed.shtml a couple earning 18,000 quid a year each and paying in 500/month extra could pay off a 170000 quid mortgage in 8 years. The money that would be going to your Landlord for 5 years would be going towards reducing the mortgage principle instead. Surely if you bought now, and assuming you were earning and saving as above, your mortgage would be paid and you would own your own home by 2013. I know there is an argument for waiting 5 years until 2010 for HPI to fall, but does anyone think HPI will reduce by that much to warrant waiting ? In other words, would you be confident that you could buy in 2010 and pay off your mortgage by 2013, therefore making it worth your while to wait that long ?

Or;

Based on the same calculator, a guy/couple with a 15% deposit earning 18,000 a year and paying 500 quid a month extra could pay off a 85000 quid mortgage in 6 years. The money that would be going to the Landlord for 5 years would be going towards reducing the mortgage principle instead. Surely if you bought now, and assuming you were earning and saving as above, your mortgage would be paid and you would own your own home by 2011. Again there is an argument for waiting 5 years until 2010 for HPI to fall, but does anyone think HPI will reduce by that much to warrant waiting ? In other words, would you be confident that you could buy in 2010 and pay off your mortgage in only one year, therefore making it worth your while to wait that long ?

Worst case scenario is the property worth 100,000 quid in 2005 drops 50% in value over the next 6 years, but even so, by the time 2011 comes around you will still have 50,000 quid because you will own a home at that market value.

ARGUMENTS FOR AND AGAINST

AGAINST;

1. If you wait for 5 years you would have 33,000(500/month over 5 years, inc interest) + 18,000(5% pa Bank interest on your 15000 deposit) = 51,000. So if HPI drops 50% over the next 5 years, you would be able to buy with cash and have 1000 quid left over for a big house warming party.

FOR;

1. HPI is unlikely to drop 50% in just 5 years(if at all). To my knowledge this has never happened before in such a short period so you could be in the same situation in 2010 as you are in now.

2. Greater financial benefits can be had by paying off the mortgage earlier than can be had from a savings account.

Based upon past performance, I think the most likely scenario is that prices will fall somewhere between 0% - 30%, which suggests that you will still be better off buying now ...or whenever.

Of course, if you lose your job (can't make the payments) and are such a numpty that you can't find another one, then all bet's are off !

At the risk of stating the bleeding obvious, the carrot that got me on the property ladder was the realisation that as soon as you get the mortgage payed off, the sooner you get to spend the rent/mortgage money on other things. Ideally you would buy when prices are low to take the maximum advantage, but sadly not everyone has the luxury of being in the right place at the right time. If you missed the boat this time I sympathise, but is waiting indefinitely for a crash that might not even happen the only solution ? I think not. By doing a bit of research, cheaper than market price properties can still be found. For example, find out which EAs each Bank uses to shift their repossesed properties etc.. By the time the Banks are selling these properties the owners are pretty much fecked anyway, so minimum moral dillema. Also, with interest rates at these lows why not try to negotiate a fixed rate deal (that allows principle payments) with the lenders and play the b*stards at their own game. Because when interest rates do begin to rise, as they surely will, mortgage affordability and availability will decrease as the Banks tighten lending rules.

btw, I don't have a VI with Virgin ...but I do dream of having one often.

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I'm sorry but I don't understand your argument.

I just hit a couple of numbers in that calculator and it says to have paid off the mortgage and interest in eight years you would have to pay £2,170 pcm = just over £26k per year. Now for a couple earnings £36k (gross presumably) that would be pretty good going.

I think you have made a rather large assumption about how much rent is being paid on that £195k pad (well below the £1,670 I suggest... probably half that or less).

So, if you think of renting at say £800pcm and saving/investing £1,370 a month for five years things look considerably different (very conservatively you have probably saved something like £80k rather than the £30k you suggest while maintaining the flexibility to afford to eat once in a while).

You have also made the elementary error of ignoring the "money illusion" effect of inflation - house prices HAVE fallen by 50% before in real terms in less than five years, the falls were "hidden" by the value of your £1 devaluing instead of the nominal price of the house. With little inflation this time around the falls will be more nominal than hidden by inflation.

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I'm sorry but I don't understand your argument.

Hello London-Loser,

My argument is;

is waiting indefinitely for a crash that might not even happen the only solution ?

The popular mantra on here is to sell and then rent, yes ? So in the spirit of 'fair discussion' I am merely exploring other possibilities.

I just hit a couple of numbers in that calculator and it says to have paid off the mortgage and interest in eight years you would have to pay £2,170 pcm = just over £26k per year. Now for a couple earnings £36k (gross presumably) that would be pretty good going.

I've no idea where you got the 2170 quid/month from. Perhaps you could explain ?

Try this on the link page;

1. click start.

2. Type 190000 (the value of your home) into the first box.

3. Type 170000 (the amount you want to borrow) into the 2nd box.

4. Type 25 (lenth of time) into the 3rd box.

5.Click calculate then the arrow for the next page.

6. Type 500 into the extra monthly payments box.

7. Type 2.5% for inflation

8. Click calculate then the arrow for the next page.

9. Click calculate then the arrow for the next page again.

10. Type 36,000 into monthly income box (2x18,000).

11. Click calculate then the arrow for the next page.

Read the Graph.

I think you have made a rather large assumption about how much rent is being paid on that £195k pad (well below the £1,670 I suggest... probably half that or less).

Again, the figure 1,670 comes from where ? My point is that by using this type of mortgage, after 8 years or so you won't have to pay any rent at all.

The calculator is correct. If you read the post you will see that I have explained why. The reason this type of mortgage is cheaper than others is that by having all your capital including wages payed into the mortgage account as soon as it becomes available, you are only paying interest on the principle after the account balance is deducted. Sure you've got to eat etc.. which does negate my argument to an extent, as towards the end of the month your salary diminishes. This effect will be subjective though and therefore it's difficult for me to factor it in. But yes, it is a factor.

So, if you think of renting at say £800pcm and saving/investing £1,370 a month for five years things look considerably different

As you have said yourself, "you have to eat". However, if you are renting, what's left over after dinner will only be getting 5% in a savings account. If you have one of these mortgages, what's left over after dinner will be knocking years and 10s thousands off your mortgage.

You have also made the elementary error of ignoring the "money illusion" effect of inflation - house prices HAVE fallen by 50% before in real terms in less than five years, the falls were "hidden" by the value of your £1 devaluing instead of the nominal price of the house. With little inflation this time around the falls will be more nominal than hidden by inflation.

Lol. That's because we live under a system of Fiat currency, which is not my fault. But let me ask you this, If I am renting instead of owning, will my pound devalue more or less because of it ? If I own my own house would I be in a better position being concerned about my home devaluing because of inflation, or would I be better off owning nothing of worth and renting because you can't lose what you have'nt got ?

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Hello London-Loser,

My argument is;

The popular mantra on here is to sell and then rent, yes ? So in the spirit of 'fair discussion' I am merely exploring other possibilities.

I've no idea where you got the 2170 quid/month from. Perhaps you could explain ?

Try this on the link page;

1. click start.

2. Type 190000 (the value of your home) into the first box.

3. Type 170000 (the amount you want to borrow) into the 2nd box.

4. Type 25 (lenth of time) into the 3rd box.

5.Click calculate then the arrow for the next page.

6. Type 500 into the extra monthly payments box.

7. Type 2.5% for inflation

8. Click calculate then the arrow for the next page.

9. Click calculate then the arrow for the next page again.

10. Type 36,000 into monthly income box (2x18,000).

11. Click calculate then the arrow for the next page.

Read the Graph.

Again, the figure 1,670 comes from where ? My point is that by using this type of mortgage, after 8 years or so you won't have to pay any rent at all.

The calculator is correct. If you read the post you will see that I have explained why. The reason this type of mortgage is cheaper than others is that by having all your capital including wages payed into the mortgage account as soon as it becomes available, you are only paying interest on the principle after the account balance is deducted. Sure you've got to eat etc.. which does negate my argument to an extent, as towards the end of the month your salary diminishes. This effect will be subjective though and therefore it's difficult for me to factor it in. But yes, it is a factor.

As you have said yourself, "you have to eat". However, if you are renting, what's left over after dinner will only be getting 5% in a savings account. If you have one of these mortgages, what's left over after dinner will be knocking years and 10s thousands off your mortgage.

Lol. That's because we live under a system of Fiat currency, which is not my fault. But let me ask you this, If I am renting instead of owning, will my pound devalue more or less because of it ? If I own my own house would I be in a better position being concerned about my home devaluing because of inflation, or would I be better off owning nothing of worth and renting because you can't lose what you have'nt got ?

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Just did what you said. It said you can pay off the mortgage 14 years and 2 months early.

So thats the mortgage paid off in 10 years and 8 months. I.e. 128 Months.

As a renter

You'd pay say £64000 in rent in the intervening time.

Using the £235,497 in payments into the account (thats what the 1-account calc came up with), to pay this, you'd be left with

£171,497

So renting leaves you as well off.

Of course this comparison is futile because it ignores changes in interest rates, rent rates, inflation and indeed house prices.

But it does show that renting won't leave you skint.

Edited by TheEmperorHasNoClothes

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If your budget allows for 524 quid a month (64,000 divided by 122) then should'nt you be considering the 85,000 quid mortgage instead of the 170,000 quid mortgage ? Would a lender even consider giving you a 170,000 mortgage based upon the ability to pay only 524 quid a month ? I don't think so. I'm not saying you can get a mortgage for the same price as renting. Property is the same as most other things on the planet, there's no free lunch. What I'm saying is

If you can afford it,

then it might be worth considering.

Of course this comparison is futile because it ignores changes in interest rates, rent rates, inflation and indeed house prices.

Nonsense. A fixed rate mortgage for the estimated lenth of the term could be used to guarantee affordable payments,(ie, no changes). Rent rates more often than not move inverse to HPI. And inflationary figures are just a tool that the Banks use as an excuse to lower interest rates to create housing bubbles, and then as an excuse to raise interest rates so they can transfer wealth/title deeds from you're Bank account into their's. I have already covered house prices above.

But it does show that renting won't leave you skint.

We're back to the 170,000 quid mortgage again. The trick is to work out an amount you can afford and then arranging you're monthly payments accordingly. An amount that won't leave you skint and minus you're title deeds that is.

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"10. Type 36,000 into monthly income box (2x18,000)."

Shurely shome mistake?

If I earned 36k per month , HPI would not matter a fig to me

ABB

An honest mistake. Thanks for pointing it out.

---

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I just did a rather simple thing of typing in £190k (15% deposit made the loan a bit less than £170k) and then looked at how much you need to pay to clear the mortgage in the eight years you suggest - the answer was ALL of your (joint) net income every month for eight years. I wondered how these poor people were going to survive eight years without any money for food.

Perhaps this is where the £36k monthly take-home pay threw your argument a little?

If I was banking £36k per month I'd agree that there is little reason to worry about whether you should buy a £190k property today or not.

With respect, the rest of your argument is somewhat limited too.

Edited by London-loser

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You can talk the figures over till the cows come home, or just go to How much can I borrow and stab in 18000 into both boxes. This will show the major flaw in this argument.

I'm afraid they won't give this hypothetical couple £170000. In fact they will only let them have £99000.

I guess they could ring them and beg them to give them an extra £71000, but somehow I don't think they'll get it.

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You can talk the figures over till the cows come home, or just go to How much can I borrow and stab in 18000 into both boxes. This will show the major flaw in this argument.

I'm afraid they won't give this hypothetical couple £170000. In fact they will only let them have £99000.

I guess they could ring them and beg them to give them an extra £71000, but somehow I don't think they'll get it.

Free Thinker,

You've forgotten the "lie-to-buy" option.

True, you and the missus may technically only earn £36k per year gross, and this will not support the mortgage you desire, but if you tell the boys you actually bank £36k net every month they may happily lend you £170k (and presumably wonder why you are not buying a £1m pad somewhere).

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Free Thinker,

You've forgotten the "lie-to-buy" option.

True, you and the missus may technically only earn £36k per year gross, and this will not support the mortgage you desire, but if you tell the boys you actually bank £36k net every month they may happily lend you £170k (and presumably wonder why you are not buying a £1m pad somewhere).

:lol: good point LL.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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