House prices!!

[Francko]

[..]

e.g. interest on a £200k loan starts at about 800 per month, which is about the same as what it would cost to rent a £250k flat.

So if you were in the situation of living in London, renting, and having a reasonable deposit but no other major assets, would you take the plunge right now?

Try to lower the risk by buying in areas where the price hasn't gone up too much. If you can find a 2-bed flat for around 200-250k then I think it's fine but in many good areas in zone 2 they might want 300-400k. That's what I think it's overpriced. In case of a price crash the latter will probably lose more, I think.

[BlasterBates]

Actually you answered your own question as you point out the rent on a 250,000 flat is 800 pounds and the interest on a 200,000 pound flat is the same.

That means it is cheaper to rent. What would be the rent on a 200,000 pound flat?. Now the difference you stick in your pocket. The economist calculated you would have 11000 more in your pocket after 5 years if you were to rent instead of buy a property

Don´t forget interest is as much dead money as rent. The interest isn´t invested it goes straight to the bank. It is only worth buying if the interest payment is less than the rent and/or the property appreciates. Well I think everybody is agreed it won´t appreciate, but the question is there might well be a crash, capital appreciation isn´t a good argument, at the moment.

The limit on house prices is income, however high the demand is for property, people have only so much income, they can´t indefinitely go on forking out more and more; and interest rates are low, so they can´t go down much. The demand i.e number of people is only one determinant, assuming the demand is high less properties than people then the main deterimant becomes average income; and this is being erroded by increasing taxation.

[VectraMan]

Where do you get a £200,000 mortgage for £800 per month? The ones I've looked at are about £1100 for interest only, and £1300 repayment.

[Torran]

£150k - £604 p.m interest only

[IR35 Avoider]

Where do you get a £200,000 mortgage for £800 per month? The ones I've looked at are about £1100 for interest only, and £1300 repayment.

£1100 equates to about 6.6%. The (three year introductory) rate on my mortgage taken out a year ago is 4.5%, which equates to £750 on a £200,000 mortgage. Surely 6.6% isn't the lowest rate available, when base rate is at 4.5%?

Even if renting costs the same as owning, ask yourself whether it's more likely a £250,000 flat will be worth £300,000 or £200,000 in a years time? I wouldn't want to buy now. I've experienced what it's like to have a flat worth 33% less than I paid for it, a year after I bought it, and to remain trapped in it for ten years until I could sell it for exactly what it originally cost.

[VectraMan]

£1100 equates to about 6.6%. The (three year introductory) rate on my mortgage taken out a year ago is 4.5%, which equates to £750 on a £200,000 mortgage. Surely 6.6% isn't the lowest rate available, when base rate is at 4.5%?

To be fair I haven't looked that hard. And I've also been looking at 100% mortgages.

I agree that interest only isn't such a good idea unless you're reasonably sure of the prices rising significantly, but assuming you can repay, and as a contractor paying back double isn't that unrealistic (assuming no penalties), then the question is are you better off doing that or saving that money and continuing to rent?

The other issue for me is that I'll be 35 this year, and that means a 25 year mortgage will take me through until I'm 60. So I kind of think I ought to get on with it.

[Fungus]

I don't see the point of an interest only mortgage since you are not paying off the original loan, although the original sum will gradually be eroded by inflation. But inflation is low, so that won't be such a big deal. And there is a risk of a drop. Plus if you rent, someone else is responsible for the upkeep of the place. Of course you might want your own castle to do with as you see fit - new kitchen, redo the garden etc - in which case buying might make sense in terms of lifestyle.

My grandparents rented all their lives until on retirement they had built a lovely bungalow in a nice village outside Lincoln. Sadly he died about 2 years later.

Fungus

[expat]

...
Don´t forget interest is as much dead money as rent.

Thank you, sir. I was beginning to think that I was the only one who had thought of that.

[boredsenseless]

I don't see the point of an interest only mortgage since you are not paying off the original loan, although the original sum will gradually be eroded by inflation. But inflation is low, so that won't be such a big deal. And there is a risk of a drop. Plus if you rent, someone else is responsible for the upkeep of the place. Of course you might want your own castle to do with as you see fit - new kitchen, redo the garden etc - in which case buying might make sense in terms of lifestyle.

My grandparents rented all their lives until on retirement they had built a lovely bungalow in a nice village outside Lincoln. Sadly he died about 2 years later.

Fungus

Actually interest only is in my opinion the best way to go for a contractor, given that we get dividends once or twice a year we can pay in lump sums each time and just pay the minimum in between keeping our monthly expenses down and still ensurin gthe capital is paid off.

It just takes a bit of self discipline to not blow the whole divi on champagne and flash cars

[eternalnomad]

Thank you, sir. I was beginning to think that I was the only one who had thought of that.

An interest only mortgage is in essence renting your property from a bank with the added disadvantages of being responsible for the property maintenance, taking the risk on the property devaluing and being less flexible in the labour market.

A sure sign that the property market is way overpriced is the fact that you can now rent cheaper (and in some cases significantly cheaper) than buying the same place.

Our property goes up-for-sale this coming Tuesday, hopefully I will find someone daft enough to pay "current market vaue" for it before the market crashes whilst I take the cash and rent somewhere until the market falls.