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


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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.

Jeez - you are pedantic aren't you :)

The £1000 figure and the £200 figure are both assuming I have a £30K deposit.

Price today £200K - mortgage £170K

1998 price - £62K - mortgage £32K

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Jeez - you are pedantic aren't you :)

Sorry - it's one of my many faults. But you used it to make a general comparison between 1998 FTBs and 2006 FTBs so I couldn't resist niggling at it.

(Quote Munimula:)

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. (End Quote)

But wouldn't you say that if you now owned a £200K house outright you'd be better off than someone who owned a £150K house? What about the estate you leave to your children if you die - there is more to wealth than being able to spend it. And everything else needn't cost more because we can't assume that HPI is inevtiably linked to inflation elsewhere because otherwise it would always be at the appropriate level. You have to take the equity into account otherwise it's dodgy accounting. That doesn't mean high house prices are good, it's just a fault in the way the maths works in your example, which exaggerates the difference between the two situations.

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But wouldn't you say that if you now owned a £200K house outright you'd be better off than someone who owned a £150K house? What about the estate you leave to your children if you die - there is more to wealth than being able to spend it. And everything else needn't cost more because we can't assume that HPI is inevtiably linked to inflation elsewhere because otherwise it would always be at the appropriate level. You have to take the equity into account otherwise it's dodgy accounting. That doesn't mean high house prices are good, it's just a fault in the way the maths works in your example, which exaggerates the difference between the two situations.

You are just uneccessarily complicating it.

Let's just keep it simple

In 1998 the house is £52K and I have £30K saved - mortgage required = £22K

Monthly: £137 (repayment, 5%, 25 years)

In 2006 the house is £200K and I have £36K saved (£30K + inflation) - mortgage required = £164K

Monthly: £969 (repayment, 5%, 25 years)

Difference = £832 per month

House prices might have gone up 3-4 times but the mortgage I require has gone up 7.5 times (£164K - £22K)

Adjust the 1998 interest rate to 7% to stop all those saying they were higher then and the payments are still only £157 per month on a £22K mortgage.

This is how things have changed for the FTBer today.

Houses were cheap in 1998 but how many people did you know telling you that, it's only in looking back now that we know they were cheap then, at the time they probably just looked like fair value. All ideas of what fair value for housing is have gone out the window. £30K deposit in 1998 would have been huge but now it still leaves you with nearly £1000 mortgage payments per month.

Edited by munimula
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In 1998 the house is £52K and I have £30K saved - mortgage required = £22K

OK, one last niggle and then I'll shut up. You didn't have £30K saved in 1998 so if we go back to your original example it would be fairer to compare a mortgage of say £46K in 1998 against the 2006 example:

In 1998 the house is £52K and I have £6K saved - mortgage required = £46K

Monthly: £286 (repayment, 5%, 25 years)

In 2006 the house is £200K and I have £36K saved - mortgage required = £164K

Monthly: £969 (repayment, 5%, 25 years)

Still a mega difference, so hurrah for anyone who bought in 1998...

And just out of interest what if house prices stayed stagnant or fell back to the same level in 8 years and you save a similar amount, another £30K towards a deposit.

In 2014 the house is £200K and I have £66K saved - mortgage required = £134K

Monthly: £990 (repayment, 5%, 17 years) = worse off for waiting even ignoring the money spent on 8 years rent in the meantime.

In 2014 the house is £52K, and I have £66K - hurrah I can buy the house outright and have a big party when I move in.

All the assumptions can be tinkered with of course, but the first 2014 example above shows the difference between forward and backward comparisons pretty well.

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OK, one last niggle and then I'll shut up. You didn't have £30K saved in 1998 so if we go back to your original example it would be fairer to compare a mortgage of say £46K in 1998 against the 2006 example:

In 1998 the house is £52K and I have £6K saved - mortgage required = £46K

Monthly: £286 (repayment, 5%, 25 years)

In 2006 the house is £200K and I have £36K saved - mortgage required = £164K

Monthly: £969 (repayment, 5%, 25 years)

If I didn't have £30K saved in 1998 and you don't accept me doing a like for like it would be better to compare with 100% mortgages. £52K v £200K and I'm sure the results are similar.

Monthly: £307 v £1182

Difference: £875

In fact the figure is even worse because now we are looking at a £1182 mortgage and hence lots of people now only getting IO mortgages

Still a mega difference, so hurrah for anyone who bought in 1998...

And just out of interest what if house prices stayed stagnant or fell back to the same level in 8 years and you save a similar amount, another £30K towards a deposit.

In 2014 the house is £200K and I have £66K saved - mortgage required = £134K

Monthly: £990 (repayment, 5%, 17 years) = worse off for waiting even ignoring the money spent on 8 years rent in the meantime.

an interesting point and definitely something to consider. However I'm a believer that prices will fall but perhaps over many years and I don't see the point buying while prices are falling, at least in the initial and larger part of the falls.

IMO it is highly unlikely that in 2014 the price will be what it is today. I may be wrong but the forward fundamentals just don't prop up current house prices.

Edited by munimula
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In inflation adjusted terms, houses are much more expensive now than 8 years ago, and he is right to point out his reduced lifetime consumption in the economy, (servicing the consumption of his vendor - a 'wealth transfer' as the BOE describe it...) Real house prices, and to a large degree rents are disgused by low interest rates at present.

Many also face much greater insecurity in thier employment, then in 1998. But the additional money he has to fight hard to raise has to compete.

People have to first outbid an investor who will be bidding with plenty of positve equity and tax breaks of upto 40% (SIPPS etc..) or other schemes, and secondly, the terrific stuggle to raise the deposit (equity) and maintain the payments on the massive borrowings out of a more insecure income.

Edited by brainclamp
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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.

The wealth has been transferred to middle aged people, who will spend their "hard-earned" cash on boats and 4x4s. We (young FTbs) pay for it all.

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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.

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.

You were very lucky in your investments to have been in that position to buy in 1999. A 700k house when you were 23/24 - seriously, well done.

Munimula is showing us more how the average joe has been shafted by hpi.

Edited by BearLite
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You were very lucky in your investments to have been in that position to buy in 1999. A 700k house when you were 23/24 - seriously, well done.

No, that's the numbers game - the house I bought in 1999 was £275,000 on a hefty deposit and repayment mortgage and not killing myself - I COULD have gone interest only and spent £700K spent everything without any back-up and lived on beans - it would have been a fantastic investment but it's not the sort of risk I would ever play - I work too hard for it to gamble like that. I turned down a house in 2003 at £860,000 - it's just had £150K spent on it and it's resold this year (not asking, sold) for £1.95M. You win some, you lose lots.

Plus I am 32, not 30.

I have a mate who did - he's retired now at 34 and cashed out of everything and is probably what you and I would call a playboy. But he's a guy who will bet on anything.

I do OK, but it'll be another 7 years before I can comfortably walk away from the City.

To make it clear, I know I am a lucky bugger - I look at my own brother and his missus - an accountant and a teacher and they can only afford a 700sqfoot shoebox in Warwickshire. He procrastinated for two years and would not listen, cost him an extra £55K of borrowings to get on the ladder. I think it has to be wealth being passed down - the older generation have made it, they will have to pass it on or it will truly be lost by way of inheritance taxes and then poured down the public sector plughole to buy labour votes....

Edited by Rachman
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