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brendan

A New Type Of Buyer? Mtb?

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I have just finished the process of getting as much equity on my current property drawn down through MEW and then paid back in again creating a nice big overdraft facility ready for when prices go down.

I have heard a lot about STR's in this forum but I didn't want to sell my house especially after I have put so much work into it and with the ability to get a crazy valuation starting to go now I was wondering if anyone else has done the same thing. I moved from Nationwide to Northern Rock who have the best deal for this atm imho you can get 95% LTV and a lower flexible rate with unlimited overpayments and draw downs.

The logic behind this is that I have savings to help me move up the ladder but I also have the potential to use the equity in a crash that I have specifcally drawn against in a boom.

I was not 100% happy with the valuation but they are more cautious on re-mortage valuations and I was taking the piss a bit with what I asked for. Nevertheless I have ended up paying a lower rate and having more capital. Can anyone see any downsides to this type of preperation?

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I have just finished the process of getting as much equity on my current property drawn down through MEW and then paid back in again creating a nice big overdraft facility ready for when prices go down.

I have heard a lot about STR's in this forum but I didn't want to sell my house especially after I have put so much work into it and with the ability to get a crazy valuation starting to go now I was wondering if anyone else has done the same thing. I moved from Nationwide to Northern Rock who have the best deal for this atm imho you can get 95% LTV and a lower flexible rate with unlimited overpayments and draw downs.

The logic behind this is that I have savings to help me move up the ladder but I also have the potential to use the equity in a crash that I have specifcally drawn against in a boom.

I was not 100% happy with the valuation but they are more cautious on re-mortage valuations and I was taking the piss a bit with what I asked for. Nevertheless I have ended up paying a lower rate and having more capital. Can anyone see any downsides to this type of preperation?

Yep

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I have just finished ....... any downsides to this type of preperation?

You've lost me. Can't quite understand how you will gain?

stuart.gif

Xil.

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I have just finished the process of getting as much equity on my current property drawn down through MEW and then paid back in again creating a nice big overdraft facility ready for when prices go down.

I have heard a lot about STR's in this forum but I didn't want to sell my house especially after I have put so much work into it and with the ability to get a crazy valuation starting to go now I was wondering if anyone else has done the same thing. I moved from Nationwide to Northern Rock who have the best deal for this atm imho you can get 95% LTV and a lower flexible rate with unlimited overpayments and draw downs.

The logic behind this is that I have savings to help me move up the ladder but I also have the potential to use the equity in a crash that I have specifcally drawn against in a boom.

I was not 100% happy with the valuation but they are more cautious on re-mortage valuations and I was taking the piss a bit with what I asked for. Nevertheless I have ended up paying a lower rate and having more capital. Can anyone see any downsides to this type of preperation?

This is either:

1 . a trick question,

2 . a person even more stupid than I had imagined could exist.

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Borrowing always COSTS. No matter how low the interest you are paying to borrow the money. Unless you invest the money in a manner that provides higher interest than the loan interest you will lose.

Even if you do invest the money in a hifh earning account or asset (Gold) there are usually high risks involved. Taking risks with borrowed money is multiplying the risk many times over, you could lose everything.

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I have just finished the process of getting as much equity on my current property drawn down through MEW and then paid back in again creating a nice big overdraft facility ready for when prices go down.

I have heard a lot about STR's in this forum but I didn't want to sell my house especially after I have put so much work into it and with the ability to get a crazy valuation starting to go now I was wondering if anyone else has done the same thing. I moved from Nationwide to Northern Rock who have the best deal for this atm imho you can get 95% LTV and a lower flexible rate with unlimited overpayments and draw downs.

The logic behind this is that I have savings to help me move up the ladder but I also have the potential to use the equity in a crash that I have specifcally drawn against in a boom.

Err, "equity" doesn't equate to savings, it has to be repaid. If I understand it correctly all you have done is get a whopping second mortgage and then put the cash into a deposit account that obviously yields less than the borrowing cost?

You've lost me. Can't quite understand how you will gain?

I suppose he means he wants the highest valuation possible so he can MEW against it before prices crash and the "equity" disappears. Just shows you how debased the world "equity" has become, as if it's a stated object waiting to be withdrawn instead of what it actually is, a whopping great loan potentially backed by collateral that is evaporating.

If you MEW for half the property and prices drop 50% then the bank now owns 100% :huh:

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I'm astonished at reading this.

So many people seem to fail to understand that part of borrowing money is paying it back again. It's not free, you know!

I'm trying to decide if this scheme is better or worse than MEWing to buy a BMW X5... :blink:

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To be fair, note that he said he repaid it, but now has line of credit

Sounds as if he is trying to lock in a credit facility based on current overvaluation. Then, when prices crash, he can MEW to buy bargains. Rather than STR now.

Could be intelligent - once the crash starts banks will be much more cautious, and MEW'ing may be very tough. Having a credit facility open to pick up bargains - might not be stupid. (but there is a cost to set up the facility)

My main question is how he can be sure the bank will use current valuation, or whether there is anything in the small print that says when he comes to drawing down the facility, the LTV will be on market value then, not now... or that giving it will be subject to conditions at a time.

But - if my understanding is correct and Brendan has found a way to get a guaranteed o/draft/ MEW facility, then if a credit crunch comes, he could be sitting pretty.

Or he might just be an idiot

Edited by okonu

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I have just finished the process of getting as much equity on my current property drawn down through MEW and then paid back in again creating a nice big overdraft facility ready for when prices go down.

I have heard a lot about STR's in this forum but I didn't want to sell my house especially after I have put so much work into it and with the ability to get a crazy valuation starting to go now I was wondering if anyone else has done the same thing. I moved from Nationwide to Northern Rock who have the best deal for this atm imho you can get 95% LTV and a lower flexible rate with unlimited overpayments and draw downs.

The logic behind this is that I have savings to help me move up the ladder but I also have the potential to use the equity in a crash that I have specifcally drawn against in a boom.

I was not 100% happy with the valuation but they are more cautious on re-mortage valuations and I was taking the piss a bit with what I asked for. Nevertheless I have ended up paying a lower rate and having more capital. Can anyone see any downsides to this type of preperation?

I read this with a smile on my face, looking for and waiting to read the punchline...... :o

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okonu and DrBubb are right about what I am doing. However I can be sure that the bank can't re-value in a crash because I have gone through the process of taking the money out then paying it in again which means they are obliged to allow me to draw it down in the future under the terms of our agreement. This is the case with all flexible mortgage products.

I am of course aware that the existing property that I have will fall in value but it is a starter home so it won't fall as much in percentage terms and since I don't intend ever selling it in a crash or otherwise this doesn't matter.

Surprising how many of you failed to grasp the point I am making which is that if a crash does happen then it's better to be prepared. I can see STR as one type of preparation but I think that what I have done is better I get full home ownership benefits and the ability to borrow more than anyone else will be able to in a falling market due to a pre-arranged excessive lending limit above the value in a falling market which I have negotiated at the peak.

There was also no cost to set this up as I noted I am paying less now than I was with Nationwide before and still have flexibility as well as 0.5% shaved off my rate. Plus NR gave me £1000 help with costs.

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okonu and DrBubb are right about what I am doing. However I can be sure that the bank can't re-value in a crash because I have gone through the process of taking the money out then paying it in again which means they are obliged to allow me to draw it down in the future under the terms of our agreement. This is the case with all flexible mortgage products.

I am of course aware that the existing property that I have will fall in value but it is a starter home so it won't fall as much in percentage terms and since I don't intend ever selling it in a crash or otherwise this doesn't matter.

Surprising how many of you failed to grasp the point I am making which is that if a crash does happen then it's better to be prepared. I can see STR as one type of preparation but I think that what I have done is better I get full home ownership benefits and the ability to borrow more than anyone else will be able to in a falling market due to a pre-arranged excessive lending limit above the value in a falling market which I have negotiated at the peak.

There was also no cost to set this up as I noted I am paying less now than I was with Nationwide before and still have flexibility as well as 0.5% shaved off my rate. Plus NR gave me £1000 help with costs.

A str will move back into the market and say "im having that" and have no mortgage, you will borrow more in a falling market.

You are borrowing money against an assest that is no longer worth that money, how is it a secured loan? but not only that, you are borrowing money agaisnt an assest that has already depreciated to buy a depreciating assest at the time. You would be ompletly exposed to financial ruien.

Your idea is not better than str, personally i think its stupid but dont let that deter you. Why doesnt everyone else do what you're doing? i suppose the rest of the world just hasn't thought of it yet :)

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As for borrowing against an asset that is no longer worth it take my situation

Purchase first house at 122k 2003 Sept got it re-valued 150k in 2005 Sept.

Anticipate moving up the chain to a bigger house in 2007-9 when prices will also hopefully be at lowest point in the cycle.

If I moved today and bought a house I wanted it would cost upwards of 500k however if I wait till 2008 it could be 250k.

My small house could also have dropped but probably to around 80k

So I have lost 40k on the original house and got the next house I want at half the price of today’s market potentially saving 250k+. I would still keep the original small house anyway and then in 2014 whilst I haven't gained on the small house I should have gains on the large one.

Admittedly it would be a bad move financially to buy now but these decisions are not purely financial in my circumstances perhaps I need a larger house or don't like living in a 1 bed cottage.

I am moving for where I want to live not for an investment unlike most of the people commenting I have diversified assets and understand how to invest whilst also appreciating that a house is somewhere to live not just an investment. Especially when I have a loan on it! I also know the equitable maxims and can apply them to my house, I think in quite a reasoned way, I regard that which ought to be done as being me getting a value for my small house along the long term trend line in house values.

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As for borrowing against an asset that is no longer worth it take my situation

Purchase first house at 122k 2003 Sept got it re-valued 150k in 2005 Sept.

Anticipate moving up the chain to a bigger house in 2007-9 when prices will also hopefully be at lowest point in the cycle.

If I moved today and bought a house I wanted it would cost upwards of 500k however if I wait till 2008 it could be 250k.

My small house could also have dropped but probably to around 80k

So I have lost 40k on the original house and got the next house I want at half the price of today’s market potentially saving 250k+. I would still keep the original small house anyway and then in 2014 whilst I haven't gained on the small house I should have gains on the large one.

Admittedly it would be a bad move financially to buy now but these decisions are not purely financial in my circumstances perhaps I need a larger house or don't like living in a 1 bed cottage.

I am moving for where I want to live not for an investment unlike most of the people commenting I have diversified assets and understand how to invest whilst also appreciating that a house is somewhere to live not just an investment. Especially when I have a loan on it! I also know the equitable maxims and can apply them to my house, I think in quite a reasoned way, I regard that which ought to be done as being me getting a value for my small house along the long term trend line in house values.

So you have 28K equity and you are prepared to lose 40K (maybe more) , at some point in the next few years you are happy to take on a combined mortgage payment of of 372K+ , i presume you think you will rent the smaller house out to cover the cost of the MEW'd mortgage on it, could be interesting if your trying to collect rent on a 80K property which you have a fixed value of 150K, nice yield.

Unless im missing something (which is quite possible) then i still think its crazy and ill thought out.

I know the market doesnt split exatcly but since its hypothetical figures then half the first property to. so you first property could of dropped to ~75K leaving you with ~50K negative equity, and yet the bank will still give you a ltv of 95% based on todays valuation of 150K when you have a black hole of 50K, then on top of this you will get another mortgage of 250K.

You wont be able to sell the small house without consent from the lender because of the NE, you'll have to 'find' 50K from somewhere. You will also pay 40% on the sale when if it finally goes through because now youve just become a landlord.

Sounds like a mess to me but i dont know you or your personal situation so maybe you cant pull it off without going bankrupt.

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Plus side is that I basically have a bigger overdraft 25k bigger and get to live in a house that I bought and I like rather than renting.

Overall it is a compromise I won't make as much money as a STRer but I won't have to rent somewhere I don't like for 4 years either. I get a better rate on anything I save as a higher rate tax payer putting excess into a flexible mortgage.

You are not comparing things properly as well you make it sound like I am taking on a crazy debt which admitted it is large but it is good value as well. If I am getting a house for £250k and it was worth 500k+ 3 years earlier. There is no reason to suggest it is not worth 350k taking a long term view at that point.

I have bought at the bottom of the curve using finance I secured at the top at a more competitive rate. I hope you don't think the banks are going to be giving 95% mortgages in a crash do you? They have already started squeezing lending and that will continue as they protect themselves if there is a crash.

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I have bought at the bottom of the curve using finance I secured at the top at a more competitive rate. I hope you don't think the banks are going to be giving 95% mortgages in a crash do you? They have already started squeezing lending and that will continue as they protect themselves if there is a crash.

cruxific0ns.gif

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Plus side is that I basically have a bigger overdraft 25k bigger and get to live in a house that I bought and I like rather than renting.

Overall it is a compromise I won't make as much money as a STRer but I won't have to rent somewhere I don't like for 4 years either. I get a better rate on anything I save as a higher rate tax payer putting excess into a flexible mortgage.

You are not comparing things properly as well you make it sound like I am taking on a crazy debt which admitted it is large but it is good value as well. If I am getting a house for £250k and it was worth 500k+ 3 years earlier. There is no reason to suggest it is not worth 350k taking a long term view at that point.

I have bought at the bottom of the curve using finance I secured at the top at a more competitive rate. I hope you don't think the banks are going to be giving 95% mortgages in a crash do you? They have already started squeezing lending and that will continue as they protect themselves if there is a crash.

each to thier own, best of luck :)

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Plus all your sums assume that I don't pay anything into my mortgage which I do.

I am prepared to lose 40k yes I see it more as a gaining 210k I would have lost had I bought a 500k house today.

At the end of the day it comes down to me getting a good deal on what I want to do anyway which is buy a bigger house.

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I just wrote a massive long post but I think it boils down to the following formula.

Brendan's net position compared to STR'ing = Price change of his house in time period + (Difference in amount saved on mortgage payment vs amount he could have earned in interest on a savings account)

E.g. if he saves more on his mortgage vs a savings account than his house falls in price, then he will be better off than if he STR'd.

Given that the best saving rates are only slightly short of the best mortgage rates, let's assume that the difference is 40% (the amount of tax he has to pay on savings interest, but doesn't pay tax on mortgage interest saved)

So to work out the benefit we have to do:

40% x interest rate (5.9%) x Amount Repaid on Mortgage

If this exceeds what his house falls in value by, then I think he is better off.

Edited by paulm

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I hope you don't think the banks are going to be giving 95% mortgages in a crash do you? They have already started squeezing lending and that will continue as they protect themselves if there is a crash.

This is definitely a reasonable point. At the bottom of the last slide (around 1994), I had to fight tooth and nail to get a 55k mortgage on the basis of two moderate salaries.

We've got so used to easy credit and stupid multiples that it will be a shock if the lending policies revert to mid-nineties rules.

I admire your efforts Brendan because it doesn't appear to have cost you anything and you may have better flexibility when the right day comes. I've a feeling that the banks will still reduce your availble credit if they feel the risk is too great.

Remember to add to this thread in 2009 / 2014. You might have the last laugh!

Xil.

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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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