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munimula

At Current House Prices I'm £730,000 Worse Off Over 25 Years

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I nearly bought in 1998, 3-bed terraced house in Bristol at £52K. To cut a long story short I didn't and haven't bought since. But now, 8 years on I’ve saved hard and have a large deposit – so I should be better off right? Let’s have a look at the figures;

Now if HPI had been 2.5% between 1998 and 2006 the house would now be valued at about £62K. (2.5% is still higher than average inflation during that period).

Today I have a £30K deposit.

If I bought the house at £62K today my £32K mortgage would be £190 monthly (repayment based on 5%, 25 years)

However, the house is today worth around £200K. If I use my £30K deposit today I still need a £170K!!! mortgage, the mortgage costs £1005 (repayment based on 5%, 25 years)

So due to the excessive HPI of the last 8 years, today I would have to pay over £800 more monthly (£9600 yearly, approx £13000 of gross pay!!!!) for the same property. £800 which is not going into the economy, into savings, pension etc etc.

Add up all these £800s and it's clear to see that the future for the UK is not very bright, especially now that real average incomes are probably on the way down.

Now what if I had the extra £800 (£9600 yearly) spare to pay off the mortgage quicker how long would it take?

Answer:

Just 3 years!!!

Lets assume that my earnings don't go up and I buy the house today, I can't afford to pay off the mortgage quicker now because it's sucking up so much of my income. How much money will I spend on the mortgage over the extra 22 years that I will be paying this mortgage?

Answer:

22 (years) X (£1005 X12) = £265,000

So due to excessive HPI personally if I buy today the economy, my savings, my pension etc etc will be seeing £265,000 less over the next 25 years. And if I bought the house at 1998 prices (+ reasonable inflation) I would be mortgage free in 3 years!!!!

Now, consider that after paying off my mortgage in 3 years I can save the extra £1005 every month for the 22 years that I would be mortgage free. How much would I save (assuming 5% savings growth)?

Answer:

22 (years) X (£1005 X 12) X compounded yearly interest @ 5% = £465, 000

So at todays prices the house will cost £265,000 more in mortgage costs and I will miss out on potentially saving what I would have to pay on the mortgage which is £465,000.

Overall, over the 25 year period if I bought the house today, compared to 1998 I am a whopping £730,000 worse off.

And this is just for a terraced house in a not brilliant part of Bristol, 2 small double bedrooms and a single bedroom. The kind of place anybody would need to settle down and start a family in. The kind of property that I need now.

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I nearly bought in 1998, 3-bed terraced house in Bristol at £52K. To cut a long story short I didn't and haven't bought since. But now, 8 years on I’ve saved hard and have a large deposit – so I should be better off right? Let’s have a look at the figures;

Now if HPI had been 2.5% between 1998 and 2006 the house would now be valued at about £62K. (2.5% is still higher than average inflation during that period).

Today I have a £30K deposit.

If I bought the house at £62K today my £32K mortgage would be £190 monthly (repayment based on 5%, 25 years)

However, the house is today worth around £200K. If I use my £30K deposit today I still need a £170K!!! mortgage, the mortgage costs £1005 (repayment based on 5%, 25 years)

So due to the excessive HPI of the last 8 years, today I would have to pay over £800 more monthly (£9600 yearly, approx £13000 of gross pay!!!!) for the same property. £800 which is not going into the economy, into savings, pension etc etc.

Add up all these £800s and it's clear to see that the future for the UK is not very bright, especially now that real average incomes are probably on the way down.

Now what if I had the extra £800 (£9600 yearly) spare to pay off the mortgage quicker how long would it take?

Answer:

Just 3 years!!!

Lets assume that my earnings don't go up and I buy the house today, I can't afford to pay off the mortgage quicker now because it's sucking up so much of my income. How much money will I spend on the mortgage over the extra 22 years that I will be paying this mortgage?

Answer:

22 (years) X (£1005 X12) = £265,000

So due to excessive HPI personally if I buy today the economy, my savings, my pension etc etc will be seeing £265,000 less over the next 25 years. And if I bought the house at 1998 prices (+ reasonable inflation) I would be mortgage free in 3 years!!!!

Now, consider that after paying off my mortgage in 3 years I can save the extra £1005 every month for the 22 years that I would be mortgage free. How much would I save (assuming 5% savings growth)?

Answer:

22 (years) X (£1005 X 12) X compounded yearly interest @ 5% = £465, 000

So at todays prices the house will cost £265,000 more in mortgage costs and I will miss out on potentially saving what I would have to pay on the mortgage which is £465,000.

Overall, over the 25 year period if I bought the house today, compared to 1998 I am a whopping £730,000 worse off.

And this is just for a terraced house in a not brilliant part of Bristol, 2 small double bedrooms and a single bedroom. The kind of place anybody would need to settle down and start a family in. The kind of property that I need now.

Thats why this generation (and the economy that it will inherit) is FCKUED if things don't correct.... luckily they will :)

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Shall we all club together and put those figures as a full page ad in every national paper?

Or is 'property always goes up' easier to remember?

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so I see, you want to pick today's interest rates, today's earnings, your savings eight years later and 1998 prices. Oh come on.

Yes, it's going to cost you more, but political mathematics and being so selective is neither use nor ornament.

As for the investment side of it - it's a risk, imagine if 1929 happens again and you lost 10 years of £800 a month overnight - please tell me what you'd be saying then ? Oh well, that happens.

If I played that game, I could have bought what is now a £2.5M house in 1998 for £700K and paid it off by 2003. I did not, get over it.

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Thats why this generation (and the economy that it will inherit) is FCKUED if things don't correct.... luckily they will :)

Totally agree. Things have just about held on in the economy as the cycle of prices going up has generated some oportunities in terms of MEWing, making money in property etc but it is what is happening to everybody that didn't enjoy this party that will dictate what happens in the future. And as my example shows, I class myself as a typical FTBer and all calculations were based on a small terraced house, not a large family home which would be completely out of reach. If everybody buying property from 2003/2004 on is in this kind of predicament then there is an absolute mountain of money that is going to be spend on debt servicing when it could have been going on other things. A whole generation has literally been turned into debt slaves.

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1998, shad thames apartment for under 200K with tower bridge views..price now? 700K +

Coulda, woulda , shoulda...there's a lot of years between 1998 and now, what stopped you?

You must have seen prices outstripping your ability to save a deposit over the years...

Edited by mercsl

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so I see, you want to pick today's interest rates, today's earnings, your savings eight years later and 1998 prices. Oh come on.

Yes, it's going to cost you more, but political mathematics and being so selective is neither use nor ornament.

As for the investment side of it - it's a risk, imagine if 1929 happens again and you lost 10 years of £800 a month overnight - please tell me what you'd be saying then ? Oh well, that happens.

If I played that game, I could have bought what is now a £2.5M house in 1998 for £700K and paid it off by 2003. I did not, get over it.

Don't be a class *****.

I'm pointing out how conditions have changed for buyers today compared to how things were before the boom. To do that I've compared the same property, what it would cost today at 1998 prices and what it does actually cost.

If you fail to see how significant this is in terms of the effects on the younger generation/FTBs and the economy then you are simply dumb

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This is a great way of demonstrating what happens if you buy at the wrong time (2006!). Also the argument that it's still okay to buy a house now if your buying it to live in and not as an investment just doesn't add up. Great post! I'm sure the usual suspects will be rubbing it in your face for not buying in '98 but give it a few years and that deposit will work a lot harder for you :)

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I nearly bought in 1998, 3-bed terraced house in Bristol at £52K. To cut a long story short I didn't and haven't bought since. But now, 8 years on I’ve saved hard and have a large deposit

Today I have a £30K deposit.

Taking the usual harsh "Ignorant" stance.

£30K deposit after 8 years is not saving hard if you're earning an average wage.

Assuming you had a 10% deposit in 1998 ie £5K you've saved £25K in 8 years ie £3125 pa (assuming you've earnt no interest either).

About £60 a week.

Are you buying Ipods by the thousand? Or are you paying too much in rent?

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Don't you just love keyboard warriors - I suggest respectfully that you may want to think how you address people. It's not clever.

If you read what I wrote, you will see that I identified it cost more adn was not disagreeing - by the same token, my parents's first house cost them £500 in 1973 - it's now worth about £80K.

It will cost them more money, but you have blatantly fiddled the numbers - there's a real point to it, but you have to admit, you have twisted it for effect. Are you suggesting you had £30K spare in 1998 and that you would have bought a house you could have paid off in 3 years - I suggest you would not have done. There is a problem with affordability for people, but you can't cherry pick like a government white paper if you want to be taken seriously.

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1998, shad thames apartment for under 200K with tower bridge views..price now? 700K +

Coulda, woulda , shoulda...there's a lot of years between 1998 and now, what stopped you?

You must have seen prices outstripping your ability to save a deposit over the years...

yeah of course it would have been nice to have bought then but in a way I can't regret that I didn't because it would have meant I'd taken a different path in life and I'm happy with my life and what I'm doing. I've choosen to go back to college in sept - 4 year course training as a chiropractor so it's not like I'm going to be buying anytime soon anyway. I decided to spend my deposit on re-training rather than a house, in the long run I'll be much better off. Life quality is much more important to me and I wouldn't be doing this if I'd bought a house and was a mortgage slave!

I wanted to do some calculations to show how different things are, open peoples eyes a bit. The change is trully shocking - do you disagree with this?

BTW I was just out of uni in 1998, like many others I wasn't ready to settle down - had to move for jobs etc. Funny to think I would have made more just buying that house and going on the dole :blink:

Taking the usual harsh "Ignorant" stance.

£30K deposit after 8 years is not saving hard if you're earning an average wage.

Assuming you had a 10% deposit in 1998 ie £5K you've saved £25K in 8 years ie £3125 pa (assuming you've earnt no interest either).

About £60 a week.

Are you buying Ipods by the thousand? Or are you paying too much in rent?

Do you know many people that could save that amount if they don't have the luxury of living with their parents?

Firstly had to pay off student debts, starting on £17K and living in SE doesn't give you much scope to save. I've been earning above average for last 5 years but still had to make concessions to save this amount so I find your remarks quite insulting. I've only ever driven >£2000 cars, don't buy all the gadgets etc. I think your view of reality is very distorted. But then knowing you are a 40 year old+ home owner that bought many years ago you probably wouldn't have any grip on the reality that is life for the under 30's in the UK today.

It will cost them more money, but you have blatantly fiddled the numbers - there's a real point to it, but you have to admit, you have twisted it for effect. Are you suggesting you had £30K spare in 1998 and that you would have bought a house you could have paid off in 3 years - I suggest you would not have done. There is a problem with affordability for people, but you can't cherry pick like a government white paper if you want to be taken seriously.

It's a direct comparison of now and then, really shouldn't be difficult to grasp. Don't see how you can have any arguments with this, of course there are lots of variables but I wanted to compare then and now. Got it?

Edited by munimula

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I was still at uni in 1998 and had no real idea of house prices etc then, but by going by your figures surely life must has been an absolute breeze back then?

Granted property is too damn expensive at present. In T.Wells a 4 bed with garden will set you back £400k which I can't afford. But if it cost £40k then i'd be laughing, and would probably buy 5 for investments!!!

I guess that is one reason why we are in such a pickle now. Property prices were way undervalued in the mid/late nineties. Lets hope we can say the same thing again in the late naughties!

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Munimula

You chose a career that paid sod all when you started, you chose to go to university and get into debt, you chose to live in the SE.

Hindsight is wonderful - presumably you are thinking that now you are retraining, but you made some possibly wrong decisions (like we all do) ; the problem is you are picking the ones that suit you to make your point.

If you had left school at 18 and learned to be a plumber or sparky and bought in 1995, imagine how life would have been different - but you did not, so live with it a bit.

I am only just over 30, I had student debts and I moved to the SE to £16K a year in 1999. Guess what, I managed to save quite happily over the next three to four years of increasing salaries, just like you - and was quite capable of having well north of £30K saved. In fact, I saved it, got lucky on some investments and lost on others - life is a game, to win you have to risk at some point - you can't live it blaming everyone else and minimising risk whilst wondering why your gains are not as much as others.

Given your rudeness and animosity to anyone who may deviate slightly from your obviously 100% correct point of view, I don't think I will bother to be insulted any more. You have a point, you are ruining it by being boorish.

Edited by Rachman

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BTW I was just out of uni in 1998, like many others I wasn't ready to settle down - had to move for jobs etc. Funny to think I would have made more just buying that house and going on the dole :blink:

Do you know many people that could save that amount if they don't have the luxury of living with their parents?

Firstly had to pay off student debts, starting on £17K and living in SE doesn't give you much scope to save. I've been earning above average for last 5 years but still had to make concessions to save this amount so I find your remarks quite insulting. I've only ever driven >£2000 cars, don't buy all the gadgets etc. I think your view of reality is very distorted. But then knowing you are a 40 year old+ home owner that bought many years ago you probably wouldn't have any grip on the reality that is life for the under 30's in the UK today.

Maybe that's true but I still stand by my point that saving £60 a week just isn't enough.

I was saving more than that 20 years ago as an impoverished "just out of uni student". And no I wasn't living with parents.

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Maybe that's true but I still stand by my point that saving £60 a week just isn't enough.

I was saving more than that 20 years ago as an impoverished "just out of uni student". And no I wasn't living with parents.

I'm currently saving £1250+ per month if that meets your approval. My saving hasn't been consistent. There have been periods where I didn't save.

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Munimula

You chose a career that paid sod all when you started, you chose to go to university and get into debt, you chose to live in the SE.

Above average starting salary on a graduate scheme. In 1998 in IT things were looking good.

Didn't get a single penny from parents through uni so didn't really have much choice. Perhaps things were a little easier for you? Well actually I started work in Luton, the last place I would choose to work. I went where the work was - is that the wrong thing to do?

Hindsight is wonderful - presumably you are thinking that now you are retraining, but you made some possibly wrong decisions (like we all do) ; the problem is you are picking the ones that suit you to make your point.

If you had left school at 18 and learned to be a plumber or sparky and bought in 1995, imagine how life would have been different - but you did not, so live with it a bit.

But I wasn't fortunate enough to have had parents that talked or discussed things like house prices, economics etc etc. It's only in the past few years I've learnt anything about it. If I knew then what I know today it would be completely different. At least I'm doing something now about it, it is never too late.

I am only just over 30, I had student debts and I moved to the SE to £16K a year in 1999. Guess what, I managed to save quite happily over the next three to four years of increasing salaries, just like you - and was quite capable of having well north of £30K saved. In fact, I saved it, got lucky on some investments and lost on others - life is a game, to win you have to risk at some point - you can't live it blaming everyone else and minimising risk whilst wondering why your gains are not as much as others.

I'm not going through life blaming everybody else, you seem to have completely missed the point. Try digesting it again, I'm perfectly happy with my life, I'm moving on and doing what I want to do and not letting the fact that I didn't buy in 1998 stop me, I won't be buying at current prices and becoming a slave to a super-sized mortgage like so many. The post is to illustrate the differences and as I've already said there are variables but it gives a pretty good idea.

Given your rudeness and animosity to anyone who may deviate slightly from your obviously 100% correct point of view, I don't think I will bother to be insulted any more. You have a point, you are ruining it by being boorish.

I still don't really understand your point, you haven't made it clear. You have some problem with this post because it doesn't include all the alternative descisions and options that I could have taken?? Well that wouldn't be comparing like for like would it? Afterall that is what like for like means.

You are right today, with my savings and earnings I would be buying a £150K detached 5 bed house at 1998 prices but as I've said I can't really compare the two can I - especially as that property today is completely out of my reach.

Edited by munimula

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22 (years) X (£1005 X 12) X compounded yearly interest @ 5% = £465, 000

So at todays prices the house will cost £265,000 more in mortgage costs and I will miss out on potentially saving what I would have to pay on the mortgage which is £465,000.

Overall, over the 25 year period if I bought the house today, compared to 1998 I am a whopping £730,000 worse off.

This maths is plain wrong in several respects.

Firstly you are double counting the £265,000 (you say it costs you £265K more + you would have saved that money - but you can only count it once in the comparison). So it's £465K that you are worse off by not £730K.

Secondly you end up at the end of 25 years with an asset. Assuming the same nominal increases or decreases you end up with £138K more in equity. Assuming 2% inflation p.a. for 25 years from each starting price you end up with £215K more in equity. (Steady 5% inflation from the two starting points would mean ending up with £425K more equity, but that might stretch credibility). Not that you can necessarily spend this equity, but it really needs to be taken into account in a comparison of wealth.

Thirdly it is something of a swindle comparing a three year mortgage against a 25 year mortgage as you are wiping out about £20K of interest charges in that step. I see the logic, but it all adds into making the sums come out to a more extreme answer.

That would all reduce the difference between the two to somewhere under £250K (on the 2% model). Still plenty, but it would be a better example if the maths was correct.

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This maths is plain wrong in several respects.

Firstly you are double counting the £265,000 (you say it costs you £265K more + you would have saved that money - but you can only count it once in the comparison). So it's £465K that you are worse off by not £730K.

Fair point, it was a bit rushed

It's still £465K though!!!

Secondly you end up at the end of 25 years with an asset.

In both cases so it can be ignored in the difference.

Thirdly it is something of a swindle comparing a three year mortgage against a 25 year mortgage as you are wiping out about £20K of interest charges in that step. I see the logic, but it all adds into making the sums come out to a more extreme answer.

I compared it with the remaining 23 years.

That would all reduce the difference between the two to somewhere under £250K (on the 2% model). Still plenty, but it would be a better example if the maths was correct.

No, the asset is the same in both cases, house paid for over 25 years.

The difference is the amount that could be saved, either £265K that you wouldn't have to spend paying off the mortgage or £465K if you paid off the mortage in 3 years and then saved the difference in what you would have to pay today on the mortage

I think the example went one step too far with looking at how much could be saved.

The point is however is that at 1998 prices there is the option to be completely mortgage free within only a few years, or have only very small mortgage payments whereas today with such large mortgage payments there is a lot more money going on the debt servicing for the same place. This is the main point. With £1005 repayment mortgage there isn't much scope for reducing these costs and for the majority of people very little money left afterwards for things like kids, savings, pensions, spending money on buying things, driving the economy etc.

These effects will be felt in the future as low inflation will not erode these super-sized mortgages

Edited by munimula

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This is a great way of demonstrating what happens if you buy at the wrong time (2006!). Also the argument that it's still okay to buy a house now if your buying it to live in and not as an investment just doesn't add up. Great post! I'm sure the usual suspects will be rubbing it in your face for not buying in '98 but give it a few years and that deposit will work a lot harder for you :)

I don't know. I just took it as an excellent example of the disadvantages of waiting if prices go up in the meantime. If prices go back to 1998 levels over the next eight years, then yes, better to wait. If they only go down by 10-20% over that kind of period then similar calculations may well show that you end up better off in 25 years by buying now, even at excessive prices. So it depends on the size of falls you expect in your own area, and there we're all just guessing.

Another way of putting this is that if prices in my local area were about 10% lower five years ago, I would clearly have been much better off buying five years ago. If however they are going to be 10% lower in five years time, the difference will be much narrower, and might even favour buying now. Backwards and forwards comparisons work completely differently - Munimula's example evades this by imagining 1998 (+low HPI) prices today but that's not the real scenario. What we actually have is cheap prices in the past, and the possibility (but not certainty) of cheaper prices in the future.

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Munimula's example evades this by imagining 1998 (+low HPI) prices today but that's not the real scenario.

No it isn't the real scenario - that's why we are all here on a site called housepricecrash.co.uk. Would we be here in 1998 on this site talking about an impending property crash?

That's the whole point. My example shows the difference to a typical FTBer that hasn't bought a house yet.

These differences need to be thought about in terms of what effect high house prices will have on the future economy.

If all FTBs coming along now are expected to have £1000+ per month mortgages when in 1998 they were less than £200 then how is the economy not going to shrink with wages restricted by inflation figures 2% and below.

In the last 10 years we've had a massive retail boom driving UK gdp growth. If all the younger generation are going to be spending all their money on debt servicing, fuel, taxes and high energy costs then the amount of money spent on other things can only go down. This will effect jobs and unemployment will go up.

Really we are seeing this already, unemployment now up 14 out of the last 15 months, retail spending down.

Is it any surprise? We are entering the downward part of the economic cycle and there will be more job losses, there will be a recession and house prices will fall. High end house sales have practically stalled in large parts of the country. I know, my parents are trying to sell in cornwall. It's peaked, time to smell the coffee

Edited by munimula

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No, the asset is the same in both cases, house paid for over 25 years.

No it's not unless you assume that regardless of what house prices are today they would end up the same in 25 years time. But that seems a bit of a fiddle too, so you should assume something similar for each:

You buy a house at £62K

25 years of stagnation - asset worth £62K

25 years of 2% inflation - asset worth £99K

25 years of 5% inflation - asset worth £199K

You buy a house at £200K

25 years of stagnation - asset worth £200K = £138K more

25 years of 2% inflation - asset worth £321K = £222K more

25 years of 5% inflation - asset worth £645K = £446K more

Fair enough you could say that now HPs are so high they won't go up at the same rate as if they had only gone up slowly in the past 8 years. And maybe that's true, but then you'd be biasing the comparison with an assumption - and all you'd really be saying is that it's best to buy at a low point of the cycle. But you're comparing the real world to a possible world where house prices are that much lower and ignoring the higher potential equity that the real world entails.

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I don't know. I just took it as an excellent example of the disadvantages of waiting if prices go up in the meantime. If prices go back to 1998 levels over the next eight years, then yes, better to wait. If they only go down by 10-20% over that kind of period then similar calculations may well show that you end up better off in 25 years by buying now, even at excessive prices. So it depends on the size of falls you expect in your own area, and there we're all just guessing.

Another way of putting this is that if prices in my local area were about 10% lower five years ago, I would clearly have been much better off buying five years ago. If however they are going to be 10% lower in five years time, the difference will be much narrower, and might even favour buying now. Backwards and forwards comparisons work completely differently - Munimula's example evades this by imagining 1998 (+low HPI) prices today but that's not the real scenario. What we actually have is cheap prices in the past, and the possibility (but not certainty) of cheaper prices in the future.

It depends if you had the means to buy in 1998 - I didn't and easy money was not being thrown at people back then.

I'm not denying that house prices where cheap in the mid to late nineties but the example above demonstrates how ridiculous prices are at the moment. I'm in a position to buy now not then - if prices go up over the next four years (I will want to have brought something by 2010) not buying now is a big mistake for me. I somehow don't think I'm making the wrong decision holding off though.

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If all FTBs coming along now are expected to have £1000+ per month mortgages when in 1998 they were less than £200 then how is the economy not going to shrink with wages restricted by inflation figures 2% and below.

Sorry, I can't help myself but it's not £1000+ vs £200, because the <£200 figure assumed you'd saved the £30K and were only taking out a £32K mortgage. More like £1000 vs £360 (so still plenty...)

I'm not saying that comparing now to the past isn't revealing. But what FTBs need to look at now is the comparison between buying now, and buying in future scenarios where house prices might (or might not) be lower and there you have additional complications such as rent, possible IR rises etc.

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I'm sorry I don't agree. What the house is worth in the future is not relevant to the calculation.

It's the buying costs and mortgage costs that I'm concerned with and the difference in those over the 25 year period.

And anyway if it was worth £460K then everything else would be more in comparison so you wouldn't be any better off anyway assuming it is your 1st residence and you obviously need somewhere to live and also assuming you don't want to move abroad to a cheaper country or move to a smaller property, afterall it isn't that big anyway.

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It depends if you had the means to buy in 1998 - I didn't and easy money was not being thrown at people back then.

I'm not denying that house prices where cheap in the mid to late nineties but the example above demonstrates how ridiculous prices are at the moment. I'm in a position to buy now not then - if prices go up over the next four years (I will want to have brought something by 2010) not buying now is a big mistake for me. I somehow don't think I'm making the wrong decision holding off though.

No I didn't either, and I wish I had, though of course we all had our own situations.

I'm not even saying prices were underpriced then or denying they're overpriced now. I just see that the maths in this example is wrong, and that by conflating the timescale it ignores some of the other factors which are relvant to a FTB looking at buying now. I've bought now and it's a real gamble. I certainly believe for many the best gamble is to wait and see. But it needs fairly decent price falls to make waiting the better choice over the next 25 years and that's the real comparison that matters - whether I will be better off by buying or waiting, not whether or not I'd be better now if I'd bought 8 years sooner, which clearly I would.

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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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