Luminous

iTrader: (3)

not all mortgages get paid off. As house prices have risen, and interest rates followed people started to have issues affording a repayment mortgage. Therefore lenders allowed people to drop the repayment element of the mortgage, just paying interest.

A mortgage like that allows your debt to tread water, its not getting bigger, but its not getting smaller. There are reasons why people take out mortgages like that. It may be a second house they plan to sell at a higher price. It may be their only house and they are young and expect their salary to rise in the next 10 years, and then start paying the mortgage off.

Mitchy260

Dont you have to prove you have an edownment set in place in order to be accepted for an interest only mortgage?

The Snug Rhino

no - i have an interest only mortgage and no repayment vehicle.

fast bloke

I can recommend a good advisor who can get you sorted out

Chris L

True, but your equation also needs to factor in the banks willingness to lend money - which they are not doing. Demand and supply is fine and I'm sure that there is plenty of demand. It may well be that the banks are simply not willing to lend at such a risk again (especially while there is still considerable fallout from the States to come).

Mr Banks, as ever you talk a lot of sense - some people on this thread would do well to read your posts very carefully!

Mitchy260

On a £100,000 mortgage you may well save yourself around £2000 per year in payments by opting for an interest only mortgage but at the end of the typical 25yr term you will have ''saved'' £50,000 by going interest only but still owe £100,000.

Meaning in the long term you are £50k worse off on the interest only mortgage.

I can't see why unless financially strained anyone would opt for an interest only mortgage?

Would someone care to explain as im obviously missing something?

If you invested the £2000 above so £50k in total over the 25yrs. Would it really turn itself into £100k to pay off the original debt?

Not so sure it would

lozgti

People stopped seeing a mortgage as something you had and paid off.

It became a vehicle for people to play in the property market and make their millions by taking risks.Didn't matter if you weren't paying things off,you were in theory going to make money on equity gained and move on to your next property venture.

john banks

Top Banana, Terminator X - I was thinking that I would compare the rental that I would have to pay and the interest only mortgage I would have to pay if I had no equity. Comparing the two numbers would give me a guide (amongst other factors) as to when to buy again.

john banks

House @ Fotopic.Net

I like the house very much. It is not a mansion. The two pics with the blue car in are of the house we rent. The other two are views - one of a neighbour's horse, one of a neighbour's house.

6 beds, 3000 sq ft, £875 pcm. Renting is dead money, sure

Deep Singh

JB, if you don't mind me asking how much would a house like that cost to buy?

john banks

£400k. Hopefully in a few years, £300k

Petem95

Brit_in_Japan

Prices of shares can go down as well as up! If you choose an interest only mortgage then you should make provision to save enough to pay off the mortgage at the end of the term. Many people with endowment policies have found themselves with money outstanding at the end of their mortgage term because of under performing investments.

I had an interest only mortgage 11 years ago when I bought my first house. It was estimated that I needed to invest £X/month in a PEP to pay off the debt after 25 years. Being financially conservative I was paying something like 1.5 times X into a PEP. I've been fortunate enough to pay off my (ridiculously small by 2008 prices!) mortgage without touching the PEP's and ISA's so all that is in the bank, tax-free for when I need it.

I'm getting a new mortgage for a new house but going repayment this time, must be getting more cautious with age. If you can afford to invest after the stock market just after the stock market bottoms out after a big fall, you're quids in for the long term

john banks

Fife.

Whilst incomes and prices (not just of housing) are lower than the South of England, weather apart I wouldn't swap.

House prices are still ridiculous compared to rents and incomes, but it is still one of the more "affordable" areas of the UK. I still expect a large correction in prices. In the last house price correction in England, Scotland got off lightly, but prices hadn't moved up as much as they have this time.

Our last house was a new build, and it doubled over 8 years. This is modest compared with England, but still quite ridiculous compared with the rise in incomes and rents over the same period.

By trading a lot in gold over the last week or so I've offset the losses I've made on my shares, otherwise it could have been a bit nasty. I would expect that by the time house prices are struggling my shares will be coming out the other side.

I'm happy for now to have at least preserved my house purchasing power just as the housing dip is getting started.

If it wasn't for the ridiculous debt fuelled bubbles in most asset classes since 2001, I would happily just stick in housing that went up smoothly at the rate of increase in incomes. As it is, the bankers make bubbles and I'll try to play them as much to my own ends as I can. It is nothing to be gloomy about, just an opportunity - some would consider it risky, I consider exploding bubbles more risky!

fatscoobfella1

iTrader: (1)

Was talking to my friend who is emigrating to NZ within a few weeks..

He has a 3 bed link detatched with garage on the border of Cheshire/Manchester..
He has been trying to sell for a while now,and the price has been reduced from £220,000 to £180,000..

So the £400,000 to £300,000 JB says may not be fair away

john banks

At present there are unemployed doctors, but I have been a partner for five years and as long as I am fit to work (insured) and I don't do anything negligent then I should be OK. You can earn 10-15% more in an equivalent practice in England, but I reckon this is more than offset by higher living costs.

For many other jobs it is as you say, the number of IT jobs and salaries available is probably going to leave most worse off up here. You can do quite well in Edinburgh in finance or IT, but it isn't London.

I know after recent years the drops I'm talking about may seem difficult to believe because we all normalise to a bull market in any asset class and we've had it good for a long time. However, something has to crack from prices that have been bidded up off easy credit which has come from dramatic increases in money supply. If the nominal prices of houses don't drop then we'll need massive wage inflation to normalise everything. I don't mind what happens - either I get my fund up to the purchase price of the house I want to buy and houses stagnate, or my fund stagnates and house prices drop.

We've gone around the arguments so many times. I think some bears called it way early, but priced against gold, house prices have been crashing since 2005. Commercial property is really struggling, other residential markets are getting hammered and in fact blamed for a probable US recession. Even emerging markets and some commodities are being bashed. If UK residential property doesn't go down by paper price or by inflation of everything else it would be truly more incredible an investment than it has already been. That is more unbelieveable than the prices correcting like everything else has/is doing. What is different about our residential property market that it will be spared other than a false sense of security we have from recent massive increases in value? Scarcity value isn't there - plenty for sale, decent number to rent, immigrants might leave in a recession, people won't be able to borrow (at all or as much) due to the credit crunch which is far from over. Prices are just sticky on the way down compared with shares where it can be dramatic as we've seen this year to date. I don't know how exposed you are to equities, but it has been a rather dramatic ride...

Terminator X

iTrader: (7)

That's a nice house for sure John.

What I actually meant though was for you to post a few links that show 6 bed "houses" to be had for £875p/m!

To show you what I mean, here is the cheapest 6 bed house (in Ascot, Berks) to purchase - it's £1.35m:

UK Estate agents with homes, houses & property for sale on rightmove.co.uk

Likewise here is the cheapest 6 bed house to rent in a nearby town, Sunninghill - it's £4900p/m:

UK Estate agents with homes, houses & property for sale on rightmove.co.uk

For £400k you'll get a 4 bed detached like this:

UK Estate agents with homes, houses & property for sale on rightmove.co.uk

Yet to rent it will be anything from £1700p/m to £3000p/m+:

£1700
UK Estate agents with homes, houses & property for sale on rightmove.co.uk

£3000
UK Estate agents with homes, houses & property for sale on rightmove.co.uk

My point is that a 6 bed house for £875p/m seems a tad far fetched whichever way you look at it ...

TX.

fivealive

You're up late UncleBuck!!

Terminator X

iTrader: (7)

^^ Lewis

TX.

fivealive

^^ UncleBuck, who is banned

Mitchy260

John, i think you're a brave man waiting on a house price crash in Scotland.

Over the last few months since prices down south started stagnating and dropping, the prices north of the border have done the opposite. Im living on the east coast, just south of Aberdeen and property around this way by all reports is still booming.

I read some figures last week, i think from the nationwide but dont quote me on that, prices had risen on average 6% last year in England, but 14% in Scotland. (Still an annual rise.....Where's the fall??)

Scotland still has a long way to go to get itself in the same state as to what the south of England is at. You've proved that by the size and quality of your own house.
The rental of your property in the south of England would be at least 4x that amount, and i would hazard a guess as to 4x the £400k value also.

Wages are not 4x higher in the south though.

All these house price crash threads and reports in the last few months are all coming from the south of England where estate agents have been a bit ''optimistic'' in the 1st instance.

There's not a hope in hell the property you have will fall to £300k. Some studio apartments in London are still fetching this amount.

P.s...Thats a very nice house for £875 a month. In Aberdeen, the same rental will get you a 2 bed flat. You must be living in the sticks somewhere

GOLDMAN 555

I am a doom monger mainly because I don't like the way the government have manipulated the population over property prices.

FACT

1. there is tons of free land in this country(look at Google Earth) the government keeps an incredibly tight grip on it in a bid to keep prices up.
2. Interest rates will go up over the next few years not down
3. I hope everybody has secure jobs to ride out the slump and keep the payments up. Because if there is a severe recession jobs will be lost. How can you keep payments upon the mortgage from your jobseeker's allowance.
4. Finally the one-piece no one is talking about are the banks. The one thing that fuels the housing market more than any other is money supply. If you can't get a loan on a house how are you going to buy. If there are no buyers the property market will fall

fast bloke

Goldman - You say rates are going to rise continually over the coming years - do you understand what causes 'stagflation', how it is cured and what the likely outcome of not curing it might be?

GOLDMAN 555

The statements you are making are not without justification.

but.....

Like I said look at google earth even in the built-up areas there is tons and tons of green land even if you released two or 3% of this land you would be able to build millions of homes.

I don't agree with you on interest rates. Inflation is what dictates interest rates not the economy. The Bank of England isn't there to control the economy.

Interest rates will move sharply higher over the next few years because the cost of goods is moving higher. If all those NHS workers and policeman get a pay rise above 2 1/2 percent the UK economy is into big problems

GOLDMAN 555

Inflation is caused by two things governments printing more money(lowering interest rates) or M4 money supply. And the cost of material goods commodities, fuel, Housing, public sector wages.

By my taking pretty much all of the above except public sector wages are spinning out of control. In 2002 when the government started lowering rates before the climate was completely different

Dream Weaver

1. As B2Z says

2. You don't know that for sure

3. Nobody really has a 100% secure job, but if my business was to go down the pan there are 1000's of jobs available at any given time that allow you to earn money to pay off a mortgage.

4. People always find a way to buy a house if they want/have to - inheritance, family loans, or just buy a cheaper house - if demand for housing is there it will be met. There is always someone looking for a certain type of house in a certain price band. If couple A cant afford to buy in price band B they will look at band A, band C will move down to band B etc etc.

The only people that should worry about any price crash are property investors, and I don't particularly care about them at all.

We have property interests, many in fact, but it will be 20 plus years before they are realised and they won't be worth less than what was paid for them back in the 70's and 80's so I'm not worried about it.

davegtt

You'll find that alot of the land is already owned by development companies, certainly the town I live in almost every surrounding field is owned by such. On top of that, its not about how many houses you can build, its about communities, so for x amount of houses that are built facilities need to be improved, shops, roads, schools etc....