While there is some truth in what you say here, it also works the other way - online calculators often don't take into account the size of the deposit but that means that while it may exclude the notorious 'subprime' mortgages, it is also likely to exclude some of the offers available to people with a high deposit and hence relatively small risk to the lender.
Mortgages
- Thread starter platypus
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While there is some truth in what you say here, it also works the other way - online calculators often don't take into account the size of the deposit but that means that while it may exclude the notorious 'subprime' mortgages, it is also likely to exclude some of the offers available to people with a high deposit and hence relatively small risk to the lender.
Soldato
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That's not the issue. They've got themselves in trouble by lending too much to too many people. The mortgage advisor in my branch transferred from NR 9 months ago. It's unbelievable some of the lending he was told to do.
You are assuming that you owe the properties outright in your scenario... Let's take another look at calculation 2:
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Now consider Scenario2, where prices fall by 50%, over the same period (5yrs):
You buy a 1 bed property now for £100k.
Lets say you put down £20K deposit and take an 80K mortgage
In 5yrs time your property is worth £50k and you have a 60K mortgage (based on paying £500 per month and I have used some really crude figure for interest)... Your total equity is -£10K as you have a mortgage that is larger than the value of your property. You sell your house at market value, but then (assuming you have £10,000 sitting around to actually proceed), lose £10K of that thanks to negative equity.
In 5yrs time the 2 bed property is £75k. You need to find £35K, and yes it's a smaller amount of money, but it is pretty much an equally large proportion of your 'investment', and remember that interest rates and house prices tend to be inversely proportional, so you may find a larger proportion of your mortgage goes on servicing the interest on the debt. You are still correct in principle, but I just wanted to illustrate that it isn't quite that simple, and negative equity is a scary place to be.
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Soldato
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Must say I can only comment on the calculators I use, both of which take into account the deposit. The FSA is climbing all over the mortgage market and are going to get more and more draconian with the legislaton, rules and regs. Mortgage lending can be had by anyone in the UK - and this is a VERY bad thing tbh.
Links?
Sounds similar to us... needed a 100% mortgage initially, which was based purely on my salary. We were tied in to it for 3 years, which has just ended so we're switching. Our IFA asked how comfortable we were with the payments we'd been making so far. After telling him that I'd had a nice pay rise and that the wife was working full time, we were able to reduce the term of the mortgage from 27 years remaining to 17 without paying hardly any extra per month!
We've decided to pay slightly more to knock it down to 15 years... although from things the wifey's been saying the past few weeks I think we'll be moving soon so that'll change things all over again.
Its not crazy.
I live off about that much per month and have been doing so for the past few years. However, when I bought my own place 18 months ago, I have been spending heaps on DIY and building materials. So, although my living expenses have remained around £550pm, the DIY/building materials have increased my outgoings.
I think being single, getting free travel, not drinking, smoking or doing drugs helps immensely.
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That is shocking.
We've decided to pay slightly more to knock it down to 15 years... although from things the wifey's been saying the past few weeks I think we'll be moving soon so that'll change things all over again.
Well, you dont need to move if you dont want to. Remember, marriage is a partnership. Both of you should agree that it is a good idea to move, not just her.
Doesn't really have much to do with any sub-prime lending on their part, or the amount of loans they had made.
It was caused by their business model - which worked fine until the global credit markets seized up and they had no way of refinancing any of their debt, as this was its main source of financing (somewhat different to other banks).
So they went to the Bank of England for money - this wouldn't have been a huge problem, except the BBC & the rest of the media managed to turn it into a run on the bank.
So, on that kind of mortgage you would have £50 left over a month. What happens if your fridge breaks? What happens if your house gets broken into? What happens if interest rates rise and you're suddenly paying £100 a month extra on your mortgage?
Breaking even each month isn't healthy, whether you're a business or an individual. It's a recipe for disaster on such a long term commitment.
Fridges can be had for around £200. Save the £50 over 4 months and 'Bob's your uncle'.
Do you have insurance? If not then you will be in a bit of bother. However, if you didnt have insurance and you got broken into, you would be in a bit of bother, regardless.
Get a fixed rate mortage for 5yrs (which is what I did). By the end of the 5yr term, you will almost certainly be on a higher wage. In any case, I would advise looking for the best deal, after your fixed rate period comes to an end.
True. But my point was that a single man can live on £550pm (after paying the rent/mortgage), without having to starve. I, myself, like to play things safe so would always like a few hundred pounds as a safety net, but if push came to shove (as it is for some people who are desperate to get on the property ladder), £550pm is doable.
Continuing on from this...
Yep, the money you saved up for you deposit would be minus £10k.
Nope. You would need to find 10% deposit, which in this case would be £7.5k. In total, therefore, with the scenario of dropping house prices by 50%, your full initial outlay would only be:
£10k (neg. equity pay-off) + £7.5k (deposit).
Consider that your mortgage will be smaller, so life should be sweeter.
Had the flat increased in value by 50% (and not decreased), then you would be paying a larger amount because the 2 bed flat is now worth £225k. Your deposit would be taken care of though due to the equity you had in your 1bed flat.
Interest rates and house prices are "roughly" inversely proportional, not strictly. This is why we have seen an increase in interest rates over the last 15months, yet house prices have continued to soldier on. In fact, it is possible that interest rates might've peaked, which could lead to further house price inflation for years to come.
Yes
I live here
Ah cool your not far from where I used to be, the other end of Coldhams lane in Cherry Hinton. My Mrs used to work on the site that got demolished for your houses.
Atleast you haven't got to go far to see the U's play
I've been slowly reaching this conclusion - even though I only use my car to drive to work (bicycle at all other times). I really don't want to live outside the centre though, and so will probably continue to rent for a while.Platypus, given that you have a car, I would urge you to buy further out (cheaper prices). I know its not ideal, but paying £250k for a property close to the town centre, as a first time buyer is very risky and will put you on the rails. Your life will be tough and you may even have to sell the boat
And the boat stays
.I've been slowly reaching this conclusion - even though I only use my car to drive to work (bicycle at all other times). I really don't want to live outside the centre though, and so will probably continue to rent for a while.
And the boat stays
And once you move out its almost impossible affording to move back in. I've always regretted selling my house near the center of town.
Plus with the likelyhood of a congestion charge to get to work costing £25 per week you may as well stay in town.
This would be true in most cases, however, you always have the option (in future) to save hard, while you are living away from the city centre, save-up a meaty deposit and then buy the more expensive property close to the city centre. The problem is that, it really does seem that in this country we work like mad, just to buy a home. Surely, there is more to life then just working ourselves to the bone so we can afford to buy the home of our choice?
I work outside Cambridge anyway (hence why I drive) so that wouldn't be a problem, but yeah the difference in house prices is too big.
@sunama: You're right, you'd like to think there is more to life, but then at the end of the day I struggle to think of anything.