How to save for a house deposit 🏠


(Matt) #64

So you can’t find a single occurrence in the last 70 years where in the UK owning property for a decade or longer wouldn’t be profitable, yet you claim it’s not a good investment.

As you are now literally ignoring decades of hard figures to push your opinion , what would it take to change your mind?


(Steve Daniels) #65

My tactic for mortgages once I have one is simple. Fix the interest, shorten the term to the absolute maximum you can afford, pay and overpay if you come into any money.

Then when the fixed term runs out, remortgage (hopefully you’re near a new LTV bracket) and repeat. If interest rates are to rise you’ll be fine, once the fix is over you can always refix with a longer term to pay off if needs be (this will keep your payments similar or less.)

I’ll be mortgage free in my dream home in my 40’s and I went to uni to sort my life out mid twenties.


#66

That is the correct way to play the game, and it’s exactly what we do. The amount of interest we are saving by overpaying every month is eyewatering, and cutting down the length of the mortgage too.


(Duncan) #67

You’re right that the past was so. I’m saying that in the future it’s likely to be different. It’s all in that report. Have a read.


(Matt) #68

So you’re just disregarding the last 70 years of data and a foundational element of all trading since humans began bartering “because it’s going to be different”. You can stick to fantasy and wishful thinking, I’ll go with the cold, hard facts and figures.


(Duncan) #69

:wink:


(Matt) #70

The articles prove nothing and are little more than frankly unfounded speculation.

Ask yourself this: what would it take for you to believe buying a house is a good investment if 70 years of data (that shows ever growing housing prices) isn’t able to convince you?


(Duncan) #71

Sounds like you have long experience in this field @Matt88. Let’s regroup in a year or two and see what happens :wink:.


(Matt) #72

No no, please do answer: what would it take for you to believe buying a house is a good investment if 70 years of data (that shows ever growing housing prices) isn’t able to convince you?


(If there's the wrong end of a stick, you'll find me holding it.) #73

I wonder how many people, when calculating how much their property has increased in value, remember to deduct the cost of the borrowing plus the costs of any maintenance and improvements made.


(Duncan) #74
  1. House prices reset back in line with wages, and, more importantly, back in line with rents.
  2. Interest rates normalised back to 5-6%.
  3. The government stopping mortgage guarantees (Equity loan).
  4. The Buy-to-Let market shaken out, as tax relief finally tapers.
  5. The government liquidates the billions of assets in the Term Funding Scheme.
  6. Similarly inflated housing markets across the world reset.
  7. The current downturn in prices completes its cycle, and they bottom out.
  8. The glut of unsold newbuilds is cleared.

If all of these things came to pass, I might think that buying a house would be an “ok” investment. But even then I certainly wouldn’t believe that I’d see the gains from the last half of the 20th century again.

Do you have anything deeper / more nuanced to add to the debate than “It happened before it will happen again”? If not I’m going to stop replying to you I’m afraid. Careful with your next reply :smiley:.


(Matt) #75

You mean providing figures from the last 70 years to prove your assertion that interest rates and housing prices are related is categorically, demonstrably false?:rofl:

You provided a list of speculative items without a single reason as to why any of them overcomes supply and demand. I’ve already shown how interest rates and house prices are unrelated (see the last 70 years of data). And take point 8, the glut is already clearing, and clearly unsold properties have not negatively impacted the price of housing: https://www.moliorlondon.com/media/report_executive_summaries/execsummary__salesreportq32018.pdf

You seem to be suffering the backfire-effect. When all proof points towards a conclusion, ask yourself why you turn away from it. Do you concede that if you had bought a house and held it for 10 years or more, from anytime since the 1950’s, you would have made money?


(Adam) #76

I’ve read the article and this quote seems to jump out at me:

the main financial benefit of owning comes from the fact that you avoid having to pay rent

Seems like it misses the point. If I pay off a mortgage over 30 years I’ll have a nice little nest-egg I can sell and use to pay rent plus give me an income if needed. If I pay rent in that time I’ll have no asset to show for it.

I’ve owned for 14 months (with a £104,000 mortgage), paying £450 pm and have paid off £4000 in that time. That’s compared to a £725pm rental I was in before (which would be £10150 to my landlord over the 14 months).

I can’t even comprehend how anyone can claim that’s not a better financial position to be in!

:rofl:


(Duncan) #77

Your experience of a mere 14 months of ownership in the lowest interest rate environment for - essentially - forever is not representative of what you will experience over the whole duration of your mortgage. The Bank of England is already raising rates, too. Sorry to burst that bubble for you but, well, there it is!


(Adam) #78

You’ve not burst my bubble at all.

I’ve not only saved £10000 in rent, I’ve also invested £4000 in a property, so am pretty happy.

It’s fine that you believe what you believe, I’m just not entirely sure how you can claim to be so certain of the future of the housing market and claim that somehow you’re more correct.

As I pointed out, buying a property is not about saving on rent for a lot of people as the article you linked to claims. It’s about investing in an asset that by retirement you can either sell or pass on to your kids. If you rent, you have nothing to show for it (in the current financial environment).


(Duncan) #79

Yes, it’s a type of savings policy. And by the end you will have an asset. No dispute. But your statements bely your thinking:

If you saved £10k in rent, then do you have £10k somewhere to show for it? No. You have, in your own words:

There are a couple of problems here. Firstly, the market is very high at the moment. What happens if you overpaid for your property? You think it’s worth £4k, because you paid a bank £4k off the principle of a mortgage, but if the underlying asset falls in value, then you will lose money from that supposed saving. Secondly, you’re projecting current circumstances into the future. What happens if there’s an economic shock and the Bank of England have to raise rates sharply? Sure, you’re ok until your fix runs out, but what about then? Perhaps everything will go smoothly for you, interest rates will stay at near 0 for the next new decades, and the housing market will continue to skyrocket. But also… perhaps not :wink:.


(Adam) #80

No, of course I don’t have £10000 savings as I’ve mortgage repayments.

I paid £725pm in rent previously. £450pm in mortgage repayments now (I’m overpaying by £50 at the moment), so there’s a £275 “saving” compared to renting. Difference is that I’ve paid off £4000 of my mortgage and used the extra £3850 on savings, holidays and a car.

I might have, you’re right. What if I haven’t and it gains 30% in value as some more dubious post-brexit predictions about Northern England have said? I know as little as you do with that one as it’s pure speculation.

I agree, same with any asset or investment.

Again, I agree. Interest rates may go up in the near future and my repayments will increase. I’ve budgeted for that. Plus that’s why I’m starting to overpay early, even if it’s a mere £50pm extra.

I’ve read and re-read the medium.com article you referred to earlier and I think there’s a fundamental flaw in the argument. It doesn’t seem to take into account that getting a mortgage means you’ll end up with an asset.

Yes, over decades the cost of renting and owning may be equal but if you rent you will not have a material asset to show for it.

As I said in my earlier post, you have decided renting is the better option for you that’s fine. But I’m amazed you seem to think you can predict so confidently what the housing market will do over the next few years and also seem to be trying to put people off buying when it could actually be the better option for them.


#81

Renting seems a bit like leasing a car to me. You dont own anything, you can move when you want (trade in the car), at the end of the term you can move or pay more to stay, you have no responsibility if anything breaks unless you break it.

Renting is more like paying for a service. You do get something for it, a place to stay. And some people like the lower responsibility and mobility.

Buying somewhere gives you the potential to have something to sell off down the line when needed. You “lose” less money in theory as you can gain some of it back. But you are also responsibly for the property and its maintenance, like buying a car instead of leasing.

( bit simplistic but not that wrong i dont think)

There’s nothing wrong with either, just if you rent, make sure you have a retirement plan that accounts for that.


(Duncan) #82

Your mortgage is 104000. In 14 months you paid off 4000, thus 333/month. You pay 450/month, meaning your interest payments are 117/month, or 1404/year. (1404 / 104000) * 100 = 1.35% (approx). Now let’s say the base rate goes to 5.5%. You don’t get the risk-free rate, so you’re going to be looking at, say… 7%. (104000 * 0.07)/12 = £606/month. Just in interest. That doesn’t look so good compared with you 450/month anymore. You’re certainly not putting a lot into “savings, holidays, and a car”. But we haven’t factored in depreciation yet. The boiler breaks? Dishwasher? Roof leaks and you need a new one? Sure, these are infrequent, but some of them cost a lot. So you have to factor in depreciation, too. Conservatively 1200/year would cost you another 100/month. So we are already up to £706/month. And we haven’t taken account of stamp duty for your next move. But notice now how we aren’t paying off any of the principle anymore. So you are going to have to bung some more cash in to cover that. To pay of the remaining 100000 over 30 years (I’m being generous on length) an extra 277/month. 705+277 = 983/month. But that extra amount could just as well have been redirected into an index tracked fund, while you just paid rent and saved yourself quite a lot of hassle.


#83

I think the issue seems to be that your being a bit simplistic with the issue. (both of you maybe).

Both are not wrong choices. Just as mortgage payments might go up, rent payments might go up. a house owner might need to pay for a new boiler, a renter might be kicked out. a house owner could sell off their house later, a renter needs to also save money for the same scenarios. there’s positives and negatives to both.