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[Closed] 95% Mortgages and your perception of the housing market in general
We've been mulling over the prospect of buying another house to let it out as we have a little bit of capital put by but not enough to make any real interest in a savings account. Property would still be the long term place to our cash (we're thinking 20 years or more) and as long as the rent covers the mortgage in the main over the period of the mortgage we'll be fine as we have spare cash to cover the mortgage on it for a period of time if it's empty, we have bad payers or the interest rate goes way above the rent.
Are there any 95% mortgages available? Will they be making a return this year in your opinion if they're not widely available now and finally, Gordon said in something I heard on the radio yesterday that people should save more toward their deposit on a property (in the region of 20 percent for first time buyers) and then went on to say that people have to start spending more along with banks releasing more funds by way of credit to the public and each other but how are people supposed to spend if they're saving 20% or more for house deposits. I'd have thought that alone would stop the housing market dead in its tracks from the start? First time buyer houses around here are about £130,000. That's £26,000 deposit! Something doesn't add up to me.
Bear in mind:
1) At the moment, there is a massive oversupply of rental places in a lot of areas, and rent doesn't cover the mortgage
2) If 95% mortgages become available, they'll be at silly high interest rates (last few 90% mortgages are at something like >6%)
3) Pretty much no-one will do 95% on a buy to let - typically more like 60%.
4) Isn't it absolutely crazy to do a buy to let in the middle of a property crash at the start of a recession, when even the most optimistic of people are predicting a further 10% drop in house prices? Bearing in mind that if you bought a house at a similar time in the early 90s, you'd have had 12 years before you got *any* growth in real value.
Do you own your own house outright yet?
Joe
Rent is supposedly falling, I have family members in afluent areas who are struggling to get rent to pay for the mortgages and expenses currently, that could just be their situation though. Seems somewhat risky.
Having spoken to a mortgage advisor recently they were thinking that a 30K deposit was pretty small and not really worthy of discounted rates on a 100K house!
Leaving aside all of the (very sensible) comments Joe makes, have you considered what your profit margin will be, both in terms of immediate rental gains and also the capital gain against the cost of buying and running the house (by which I mean acquisition costs and fees, mortgage interest over the lifetime - this is the biggie that no-one considers - mainteance, insurance, tax on income and capital, etc.).
If you can make some accurate assessments of where you need to get to to make the sort of return that you might otherwise make over the same period throughb different investment means (cash, equities, debt, etc.) then you'll know if it makes sense.
I'd have said, however, that if you're asking the quesitons you are and make the observations you have on current economic policy statements, that perhaps you'd be better off keeping the cash away from property for the time being.
I was looking about at what mortgage deals are available and found nothing more than 90% LTV... but the problem with them is that they are very expensive! You'd be looking at something like a 6-7% fixed interest rate for 2 years, or equivalent. If you have say a 25% deposit, you can get 3-4% rates...
When you do the maths it turns out to be about £800+ a month in mortgage payments on £100,000 on a 90% LTV mortgage. If you then put on top of that the overheads that would be needed to let the property out, I can't really see you getting your mortgage covered by the rent. So a 95% mortgage would be even worse!
Our vague and tentative chats about it so far have been on the assumption that house prices are not going to fall much further if at all and that 95% mortgages (certainly 90%) mortgages will be widely available by the middle of this year as something has to happen to get funds circulating again. Redrow Homes announced a further 90 building trade job losses this week and they say their employeee number (now 550) is exactly half what it was this time last year.
How is the housing market going to get going again (all be it never at the ridiculous pace that it was) if the initial deposits for first time buyers is going to be so high? I remember struggling to get the 5% deposit for our first home! If first time buyers struggle or indeed find it impossible to get their first home, the whole market is in flux isn't it?
We'll not pay our house off for another 14 years yet. Maybe our 10k is best left alone in the bank?
Bloody hell! There's one hell of a lot more to it than my simple brain had considered to be honest. It's a good job my wife is the money person in our family :-).
I want to change my thread! "Where's best to invset 10k long term?"
I own 2 properties. Bought a house with the now ex-wife 4 years ago. We let that now and have an 80% mortgage on it. With Northern Rock so it's pretty low at the moment. The mortgage is £610 a month, tenant pays £500. With insurances, British Gas homecare (well worth the money) etc it costs us about £200 a month to keep up with it - our bit of the investment. It was empty for 10 months last year so I've struggled my way through.
I bought an apartment last July. I only had 5% deposit and must have been one of the last people to get a mortgage with such a low deposit. The flat is probably in negative equity at the moment & I'm on a stupid mortgage rate, however it was either accept these conditions or continue renting. The mortgage is fixed for 2 years so I should be able to get a better one in 17 months.
Renting the place has been a mare. Lady in her 70's moved in 1st December - Boiler packed up over Xmas, Ballcock snapped = water tank overflowed = water through ceiling, Garage door broke... I could go on.
I'm hoping we're through the worst of it and it will be worth it in 20 years time when I cash it in...
How is the housing market going to get going again (all be it never at the ridiculous pace that it was) if the initial deposits for first time buyers is going to be so high? I remember struggling to get the 5% deposit for our first home! If first time buyers struggle or indeed find it impossible to get their first home, the whole market is in flux isn't it?
Which is all very well but don't expect anyone to offer a buy-to-let mortgage without the buyer putting up a significant amount of equity.
Maybe our 10k is best left alone in the bank?
Have you looked around for the best interest rate deals?
How is the housing market going to get going again (all be it never at the ridiculous pace that it was) if the initial deposits for first time buyers is going to be so high?
Perhaps by prices dropping so far that first time buyers will be able to afford a reasonable deposit?
You could put the £10k towards your mortgage?
Regarding bank interest rates - if any of you are with hsbc you can still get 8% if you only invest up to £250 per month using the regular saver account (or 10% with a premier account - you need to pay for this account - not worth worth it in my opinion)
Must admit that surely it seems more sensible to pay off 10K of your own mortgage, instead of taking out a second mortgage - the saving you'll make on the interest must surely outweigh any gains unless the housing market rockets again soon.
it costs us about £200 a month to keep up with it - our bit of the investment. It was empty for 10 months last year so I've struggled my way through.
...
I'm hoping we're through the worst of it and it will be worth it in 20 years time when I cash it in...
Blimey - you've gotta make £50,000 on selling the house before you even break even on your 20 year investment? Starting from the top of a market? That sounds like a bit of a risk no? And you've already sunk 20% of the original price into it.
Joe
as said above, drop 10k off your own mortgage, at this stage in your mortgage contract it would probably take about 5 years off your term, this will save a fortune in interest.
Anyone who invests in a buy-to-let knowing that the rental yield is lower than the mortgage repayments is a fool. Your personal 'investment' in the shortfall is just paying the bank's interest.
I bought at the end of the last recession (mid nineties) and have largely been sitting on my hands for the past few years (apart from a few speculative purchases).
Now I feel the time is right to start investing - I've just bought one building that is commercial/residential split and I'm going shopping for a few more 2-bed houses in the next couple of months.
However, there's enough equity in my existing portfolio for me to be able to secure finance without putting my hand in my pocket.
The way I see it, I bought well in the nineties, we're in a similar financial climate now, and it could be another 15 years before the next recession, so now's the time for me to make my money. I don't want to still be doing this when I'm in my late fifties.
I love recession. 😉
BTW, now's not the time to be paying off your own mortgage, you should have done that when interest rates were high. Now's the time enjoy lower rates whilst investing elsewhere.
Poindexter is in a very lucky (and unsual) position. He is right though, it is only worth buying property now if you have sufficient equity to do so.
The ready availability of 90%+ mortgages is one of the primary reasons that the housing market is so screwed now. If 20% deposits had always been required I expect the unsustainable rate of increase in price (not value) that occurred over the past 8 years would probably not have happened at quite the pace it did and the economy as a whole would be better off now.
BTW, now's not the time to be paying off your own mortgage, you should have done that when interest rates were high. Now's the time enjoy lower rates whilst investing elsewhere.
It depends. If you were far-sighted enough to get a tracker then that might be true, but if you're on a standard variable rate mortgage then you're probably paying a lot more. Better to do the sums for himself.
Depending on the interest rates, it's not always the best idea to pay money off your mortgage. If you can get a better net interest rate for your savings than you are paying on your mortgage then you are better off putting your money in savings.
Also, make sure you both have completely filled your tax-free ISA allocation for this year (£3600 each), and then don't forget that when the tax year starts again in April, you can put another £3600 away each.
The ready availability of 90%+ mortgages is one of the primary reasons that the housing market is so screwed now. If 20% deposits had always been required I expect the unsustainable rate of increase in price (not value) that occurred over the past 8 years would probably not have happened at quite the pace it did and the economy as a whole would be better off now.
The rate of house price increases has been driven by:
- increasing numbers of households because of divorce etc and more people living alone;
- historically low interest rates;
- rising living standrds.
Mortgage rationing never stopped booms and busts in the property market in the past and it won't stop them in the future. All it does is force people to pay rent for longer and put money into saving for property instead of say saving for retirement.
Also, make sure you both have completely filled your tax-free ISA allocation for this year (£3600 each), and then don't forget that when the tax year starts again in April, you can put another £3600 away each.
Money saved on interest you don't pay is also tax-free.
I have a few fixed terms that finished recently, moved onto SVR and actually saved me money.
If you finish your term and start paying more, I'd be looking at the redemption fees required to move on.
The last finance I got was in October - the day before the first 0.5% rate cut down to 4.5%. It was a BoE tracker with Barclays - my business manager told me it was the last tracker Barclays sold before they pulled them.
So yes, luck plays a big part. But one thing I find is, the more I pay for financial advice, the luckier I seem to get.
I've just spoken to the holder of the accounts and it would seem that our hand holding idle chat at the weekend about all the things we could do with our money was just that, idle chat. Apparently, there is no way in the world we would be buying a house to rent out even if we wanted to. It's great being a simpleton. Such a stress free way of life, unencumbered by the stresses of finance 🙂
I'm still convinced that 90% or even 95% mortgages are going to come back though. No other way of getting first time buyers in to their first homes......surely?
Oh and Gordon Brown does so many u-turns you could get a whiplash just watching him.
I'm still convinced that 90 or even 95% mortgages are going to come back though. No other way of getting first time buyers in to their first homes......surely?
Why not, my other half and I have both seperately saved decent deposits despite us sharing 11 years of studentness (with student loans to match) - we were just careful with our cash and worked in our spare time.
The way I see it is this. The house was valued in December at £135,000. If we have to pay £200 a month for the next 20 years it'll cost £48,000. At todays values / prices etc that still yields £87,000.
I am rubbish at saving for anything. If I can cash in equivalent of £135,000 in 20 years that would be a good payout wouldn't it?
don't forget, you'll have to pay capital gains tax (or whatever they come up with in future) on part of that, so you're going to be lucky to break even.
It's not difficult to do it in a way that guarantees you won't be chipping in from your own pocket. Buy the right type of house in the right type of area and let to the right type of tenants. 2 and 3 bed houses, close to city centres and near large employers are the ones to go for.
andym... money saved from paying interest on a mortgage isn't tax free, you've just already paid tax on it, which is why you need to compare it to the net savings rate.
For example, for £10k, if you are earning 5% gross on that for example, if you are a lower tax rate payer, then you'll be getting 4% net. As long as your mortgage rate is above 4% then you will be better off paying off your mortage. If the mortgage rate is less than 4% then it's better to save.
While everyone has their financial heads on suggestions on this would be good:
We have a spare 10 grand ish due to a good year by partner. Do we pay off mortgage, pay off equity loan (if we did this now it would be interest free as house prices have dropped) or put into savings for a rainy day. To bear in mind we might be wanting a bigger house in a year or 5 and we bought 2 years ago so house has lost value, no great drama as long as every house is doing that and a bigger house drops more, we would need spare cash for deposit though as equity will be minimal. House was 170 with 30 equity loan and 105 on mortgage
Why not, my other half and I have both seperately saved decent deposits despite us sharing 11 years of studentness
You know full well though that most people won't do that, CK.
If I had 10k and no debts to service, I'd be putting it in savings. Or maybe buying shares in banks. Barclays for instance.
rockitman
I make that about a 3% annual return.
Plus you may be liable for capital gains tax.
Doesn't sound like a huge return to me.
andym... money saved from paying interest on a mortgage isn't tax free, you've just already paid tax on it, which is why you need to compare it to the net savings rate.
For example, for £10k, if you are earning 5% gross on that for example, if you are a lower tax rate payer, then you'll be getting 4% net. As long as your mortgage rate is above 4% then you will be better off paying off your mortage. If the mortgage rate is less than 4% then it's better to save.
I think we're actually agreeing, but from different ends of the telescope. I was simply making the point that just because an investment is tax-free it doesn't make it the best choice.
I have been looking into this myself. Complex circumstances but the sums only add up for me with a loan of about 80% of the value of the property. Prices are stable here and rentals are rising. with an 80% loan and figuring on 9 months rent a year we would only get the growth in the value of the property - no profit year on year at all. Probably worth it for us as a long term investment.
Andym... phew.. I thought I was missing something vital there, and couldn't work out what it was! 😀
The 3% return is of course based on the price of the house not increasing though isn't it?
I'll be honest, I'm just glad I've managed to keep the house at the moment. If this had been money going in a savings account it would have been spent on holidays etc by now. As I said, I'm an awful saver but having the 2 mortgages means I have no option.