With Current House Prices I'm £465k Worse Off: Revised Version

[munimula]

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

Overall, over the 25 year period if I bought the house today, compared to 1998 I am a whopping £465,000 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.

So if I didn't save anything I'd be £265K better off over 25 years, if I saved what I would now have to spend on the mortgage I'd be £456K better off.

Now, please now comments about the deposit and not having it in 1998 - the comparison with 100% mortgages is even worse!

This is a like for like comparison. Looking at the difference for an FTB if they were able to buy at 1998 prices today and comparing the extra costs and the pointing out the money that is sucked up out of the wider economy by debt servicing of super-sized mortgages