Homebuy Scheme

[Saracen]

My emphasis. In every previous house price crash, prices have fallen to a point where they're not outrageous any more (generally around 3x average earnings). This house price crash will IMO be no different. Just wait for the next downward spiral to begin.



If past history is anything to go by (and it usually is) then in fact the risk is very high.

.....

I think the one thing we can say about house prices in the relatively near future is that we don't know what'll happen. I can make the case for why they may well go up, or for why they may well go down. And much of it depends on what happens outside the housing market, and we simply can't tell. So either way, it's a gamble.

What worries me is a double-dip recession. Sure, they're rare, we but have many factors currently suggesting that its a serious risk ... maybe a knife-edge one right now.

It's been said in this thread that prices have been going up for a few months, and the figures Ilve seen agree with that. That doesn't necessarily mean it'll continue, though. House prices rest largely on confidence, and the impact on confidence initially when the banking farce kicked off was to clobber confidence, and we all got tales of woe and doom, and incipient end of civilisation. But when it didn't happen, people started to then "well, it's not so bad after all".

The trouble is, if the rhinoceros standing in the custard bowl is invisible, it doesn't mean he isn't there. And there's a couple of invisible rhinos in the economic custard bowl, the biggest one being that honking great deficit .... and debt.

One reason the "recession" wasn't as unpleasant as a lot of people were expecting is the huge cuts in interest rates, the huge financial stimulus and the huge amounts oif(inflation-inducing) quantitative easing the government have indulged in.

And so far that's mitigated the effects of the recession. But I worry that people think the worst is past us, and the cold hard truth is that it might well not be, and that there's no way to actually know. For instance, to downside with all this stimulus and QE is that it has to stop. it can't go on for ever. The country has already pretty much max'ed out it's credit card, and isn't that far off of having to go to loan sharks, the international equivalent of a lender of last and desperate resort being the IMF.

What happens to a very fragile economic recovery when the government has to turn the money tap off? That could trigger a double dip, and pretty much certainly will trigger more company failures and unemployment. But you can;t keep the money tap on forever, because that requires a never-ending flow of extra money from someone and for every borrower, a lender there must be. Lenders get to set the rates they'll lend at, and if the government don't stop increasing the deficit soon, and start bringing it down, those rates will go up and that could well trigger a double dip.

Next (probably) May, we get an election that will determine who runs the country when much of these decisions will get made. But the main differences between the Tories and Labour are when to turn the tap off, or at least, turn it down, and when and how much to start cutting by, and quite where to apply it. what is not in doubt is that spending is going down, taxes are going up and the pain is FAR from over, whether the recession double dips or not.

If the recession double-dips, it doesn't bode well for house prices. But if it doesn't double-dip, we've still got that debt and deficit to deal with, QE will cease, public spending will go down and taxes up, and that doesn't bode ell for house prices either.

We might get away with walking a fine line between turning off the money tap to early and being taken down by it, or by not turning it off early enough, and being taken down by the bond markets or long-term interest rates. Or we might not.

Happy Christmas.

[DeludedGuy]

Saracen is more or less correct, keep in mind we have an election coming up, and everything will almost certainly be made to appear rosy - only after the election will we see the true horrors unfold.

[Gr44]

Good post Saracen!

Nail head, it's our debt that scares me more than anything... It'll rear it's ugly head sooner rather than later.

Not looking forward to another.. ~5p on petrol come the new year either!!

[Blitzen]

And if you do need anything from Ikea... I drive past Oxford way pretty much every weekend, and Ikea is on the way home from the station to my flat...

Or the local 50p shop has bargains.
And similar quality to Ikea aswell

[Salazaar]

I just found out from my solicitor that I'll never have to pay stamp duty on the flat thanks to the staircasing limit

[badass]

if you're doing it by yourself, as I have... then yes, it's your only option.

It's either that or live at home for the next x years while you save up or throw money down the drain renting.

My flat is haemmhoraging my money at the moment, but I wouldn't have it any other way.

You've lost your entire deposit and in addition to that, still owe money then call renting throwing money down the drain?
It's a shame you've lost so much but money lost is money lost, regardless of how you lose it.

Also remember that it's the inflation adjusted price that counts. So if house prices stay the same for 3 years but we have 5% inflation, then that house has actually fallen in value by 13.6% even though the price is the same, because people are earning 15.7% more.

1. The inflation adjusted price is only relevant if you put down a massive deposit. Otherwise it doesn't matter because what you owe on the property is also adjusted for inflation
2. Inflation as a measure has nothing to do with average salary. It's connected to the cost of things to buy. Wage inflation can lead to inflation but they are not the same.

I just found out from my solicitor that I'll never have to pay stamp duty on the flat thanks to the staircasing limit

Good news Sounds like a good blag!

[pp05]

I would wait.

[tiggerai]

You've lost your entire deposit and in addition to that, still owe money then call renting throwing money down the drain?
It's a shame you've lost so much but money lost is money lost, regardless of how you lose it.

Yes, as I'm not selling yet... and I bought mine before all this malarkey started - so my deposit was only £1500... (97% LTV) so I've not exactly lost a lot in the grand scheme of things.

I'd rather have my own place, where I can do what I like, when i like, share with whomever I want and not have to live under anyone else's rules. It's down to personal preference, and yes, I may lose some money (but not enough to be irrecoverable) but I'd rather that, than be paying someone else's mortgage for when house prices do recover.

[Salazaar]

I'd rather have my own place, where I can do what I like, when i like, share with whomever I want and not have to live under anyone else's rules. It's down to personal preference, and yes, I may lose some money (but not enough to be irrecoverable) but I'd rather that, than be paying someone else's mortgage for when house prices do recover.

This.

For me it's a home before an investment and if I end up paying a bit for it, then so be it, so long as I can afford it.

[TheAnimus]

Ok, some ideas, here goes.

Base Rate Inflation and Property Prices.
People haven't been at an "opportunity cost" in the last few decades on the whole, as house prices have risen with or above base rates, the last 2 years has however seen them contract, so someone who bought 18 months ago might well be at an opportunity cost.

Now, this is very generalised, houses are not all one asset, postcodes aren't all even one asset. How silly is it to say "property prices in the UK have fallen" or whatever alarmist headline, when there will be a sizeable number of people who haven't seen a fall. So we shouldn't really generalise, plenty of people are smug like me, and bought in a low realised volatility area. By this I mean a place where prices didn't jump up sharply or jump down quickly, they where changing consistently.

Now on to the whole negative equity and money lost thing.

Rent, people don't generally rent out of the goodness of their heart, they are trying to make a return. Now we know that people a few years ago would have gotten 5% from taking virtually no risk with their money, and piratically no hassle.

As such why would you risk £300k if you weren't making more than 5% per year on it?

A rental property has two sources of income, capital application, and rental income.

Most landlords believe they will see a increase in capital over time, but also want to be getting more than a mortgage payment would be on the property as a net return.

It stands to reason that if you are only getting a 3% return from rental, that its not worth renting it out, tenants are a pain in the arse and a risky one at that. Now if that property is thought to be going down in value, the landlord will need the tenant to pay the deprecation or they will be wanting to sell asap.

So from my reasoning that would suggest that houses are always cheaper to service a mortgage than rent. This is not always the case, but at least in my area it seams to generally be the case (its not always the case because of transaction costs and the fact people are stupid).

Now this means that even if people have lost money in terms of equity, they will have saved money in rent when you are looking at it over say 5 or 10 years. Not to mention the fact it allows people to have exposure to the property prices, helping them not get priced out. Then when you add on the fact when you own a place you can make it a nicer place to live without any hassle, no worries with contracts ending.

[Rob_B]

1 seat sofa? That's a chair...

(I know, I know...)

Negative equity? Just live in it!

[schmunk]

So from my reasoning that would suggest that houses are always cheaper to service a mortgage than rent. This is not always the case, but at least in my area it seams to generally be the case (its not always the case because of transaction costs and the fact people are stupid).

I'll bet you it's not when you consider the rates available for a 90% LTV mortgage, and particularly for a Buy-to-Let mortgage.

[TheAnimus]

I'll bet you it's not when you consider the rates available for a 90% LTV mortgage, and particularly for a Buy-to-Let mortgage.

Sorry i don't understand the statement?

You'll be its not cheaper to service a mortgage on a property, than rent given 90% LTV rates, and BTL rates.

BTL rates are higher, often by as much as 1.5% absolute.

Also I should have added in there a factor for people who have no savings, and can't get in to a 90% LTV mortgage, we could argue they are been exploited by rental prices as they have no choice.

Either way, my reasoning suggest that renting should always be more expensive than serving a mortgage.

[schmunk]

Sorry i don't understand the statement?

You'll be its not cheaper to service a mortgage on a property, than rent given 90% LTV rates, and BTL rates.

BTL rates are higher, often by as much as 1.5% absolute.

Also I should have added in there a factor for people who have no savings, and can't get in to a 90% LTV mortgage, we could argue they are been exploited by rental prices as they have no choice.

Either way, my reasoning suggest that renting should always be more expensive than serving a mortgage.

My rented house is valued at slightly over £300k (per Zoopla), and I'm paying rent of £800 pcm. Savings of £30k gives approx £900/year interest income. Total cost for the year = £8,700

A loan of £270k on a house worth £300k, as a first time buyer, gives a best-case scenario of 4.63% tracker for 2 years = £1,045 pcm interest-only payment, and more realistically a fixed-rate of 5.99% = £1,352.72 pcm. No interest income, so total cost for the year = £16,200

This doesn't include the increased costs of home ownership, e.g. repair costs, buildings insurance, decoration, etc.

Then we need to address the fact that on purchasing a house worth £300k, I would need to pay stamp duty upfront of £9k, so really my deposit is £21k, and therefore not actually 10%.

Further to this, there are the upfront and added-on mortgage fees, a further ca. £1k cost...

All in all, I'm happy renting, thanks.





p.s. I can't even get a quote for a 90% LTV BTL mortgage via www.moneysupermarket.com...

[TheAnimus]

Ah your miss understanding my comments, there will always be cases, such as yours which suggest that the landlord should sell, enless they expect the underlying value to increase, as the div payments are less than the intrest.

If the home is valued at 300k, and they are only getting gross rental returns of 9.6kpa, that is about a 3.2% ROI. Add in agency fees and upkeep costs, shall we call that 2.5%.

Now in my post I didn't state that I thought a 90% mortgage was affordable, I would say you pay a punitive rate of interest for it. But view it in my eyes that I'm currently paying 2.25% for an IIRC 87.5% LTV mortgage, then its cheaper for someone in my situation to service a mortgage than rent, assuming there are no major doing up costs I can't afford (a ****ing pump can cost £1000....).

So we either conclude that your landlord is considering that return better than they would get on the low risk bond market, which at the moment is quite probably true.

Now there are also taxes which make the liquidation of assets harder (CGT as well as stamp) so that could be another reason why renting is cheaper.

But, if you had say £50k in the bank, and a good credit risk, you would find it cheaper to own, and you would have exposure to the market (which over a long period of time, historically has always been a good thing, but past performance yadaydayda.).

So if a counter-party came along on the homebuy, you would almost certainly find it cheaper to buy.

And this is where my ranting comes in at so many people, like Rave. Property prices are not been 'pushed up' by greedy landlords keeping the surds in their place. Its a complete lack of supply.

Renting will always be more costly theoretically, because you are consuming a service which someone is providing at a premium. There are cases when this isn't true, if you have little/no deposit, no credit history, a landlord can take the risk of having to service the debt with no tenant etc.

But if people want to buy more houses, we have to look at building on the green belt (no thanks) or look at why some areas are completely vacant. Invest in better public infrastructure, make people more mobile and so on.

[Bugbait]

All in all, I'm happy renting, thanks.

But after 25 years of renting what are you left with? After 25 years of paying off a mortgage you get an asset that's worth at least double (in nominal terms) what you paid for it. If the upfront cost of purchasing higher than renting? In most cases yes, at the moment. However, a mortgage is not a short term affair. Unless you're investing wisely with the "savings" from renting over buying then in the long term you're probably worse off, on your primary property anyway.

Renting and buying incurs similar insurance and council tax. Decoration? Even fully furnished places don't have everything you need, and if you're into sparse living then decorating your own place won't cost much more.

Even at the recent base interest peak of 5.5% the cost of renting my place compared to the monthly mortgage repayments was maybe a couple hundred pounds in favour of renting in pure monetary terms. With the current interest rate of 0.5% (of which I pay 0.89%) the cost of my mortgage is less than what I would be paying in rent by several hundred pounds per month.

If you don't have savings or can't get a good mortgage deal then renting has its advantages or may be the only option. However, with some savings and a good mortgage deal, even in the short term I've always been an advocate for buying a principle property. Over time, if all else goes south in your life having a roof over your head is priceless in my books.