Reverse gazumped

D1stant

dmclean1842 wrote: »

Ok in 2006 you could get a tracker mortgage of 3.5%:

Monthly repayment: €1,337.95
Mortgage amount: €300,000
Interest rate (APR): 3.5%
Term: 30 years
Cost of Credit: €181,663.29
Total cost of loan: €481,663.29

Now in 2011 you cant get a tracker and the interest rate is about 6.5% and we will say that house prices decreased by 33%

Monthly repayment: €1,239.78
Mortgage amount: €200,000
Interest rate (APR): 6.5%
Term: 30 years
Cost of Credit: €246,319.24
Total cost of loan: €446,319.24


Not much of a saving plus I believe that the 6.5% rate will go up and up.

Good post and something a lot of people lose sight of. The headline 'price' is just one variable in the buying decision.

On a tangential note If I look at a house on daft. The default mortgage period is 35-40 years and they quote pretty low interest trates from MortgageLine (whomever they are). Are theee rates real or is Daft trying to dishonestly entice?

Zamboni

D1stant wrote: »

Good post and something a lot of people lose sight of. The headline 'price' is just one variable in the buying decision.

It is a good post but it assumes that both examples start from the same position of zero.

A realistic comparison would need to take into account what the person has been doing since 2006 if they hadn't bought.
What if they've saved the difference between the mortgage repayments they didn't take and the rent - They could have saved 30k with interest thus drastically reducing the mortage required in 2011.

Not sure if I have articulated that well...

lainey316

Zamboni wrote: »

It is a good post but it assumes that both examples start from the same position of zero.

A realistic comparison would need to take into account what the person has been doing since 2006 if they hadn't bought.
What if they've saved the difference between the mortgage repayments they didn't take and the rent - They could have saved 30k with interest thus drastically reducing the mortage required in 2011.

Not sure if I have articulated that well...

Well, actually it does because it's looking at the amount you borrow. So in 2006 you borrowed 300k and paid 24k deposit. In 2011 you borrowed 200k and paid 100k deposit. It doesn't change the repayments. It's the cost of the loan, not the cost of the property that is calculated.

Zamboni

lainey316 wrote: »

Well, actually it does because it's looking at the amount you borrow. So in 2006 you borrowed 300k and paid 24k deposit. In 2011 you borrowed 200k and paid 100k deposit. It doesn't change the repayments. It's the cost of the loan, not the cost of the property that is calculated.

The example given reduced the amount borrowed due to price reduction.

My point is that the amount borrowed would be even further reduced if the case had been saving the difference between mortgage repayments and rent.

lainey316

Zamboni wrote: »

The example given reduced the amount borrowed due to price reduction.

My point is that the amount borrowed would be even further reduced if the case had been saving the difference between mortgage repayments and rent.

Ah - it's meant to be the same house? Sure you'd be using your savings to get a better house! That's what I'm doing with mine anyway.

Zamboni

lainey316 wrote: »

Ah - it's meant to be the same house? Sure you'd be using your savings to get a better house! That's what I'm doing with mine anyway.

That's it. The example only works if you assume the same house, same person and that the person has done absolutely zero in respect of their financial circumstances in the time that has passed.
Which has a use from a historical comparison but it doesn't tell the full story.

user1842

Idbatterim wrote: »

There is no way fall is only 33%, 40% minimum, also as rates go up, prices will go down...

I was using 33% to make it a simple calculation to give an example. Your right 40% should be the min but I was being generous with the 6.5% rate which will be a lot higher in the future so it kinda balances out.

Hopefully prices will come down to make higher interests rate mortgages affordable

user1842

Zamboni wrote: »

That's it. The example only works if you assume the same house, same person and that the person has done absolutely zero in respect of their financial circumstances in the time that has passed.
Which has a use from a historical comparison but it doesn't tell the full story.

True it was only meant as an example that all factors need to be considered what talking about house prices. You cannot just say a 40% reduction when thats not really the case when interest rates are high

D1stant

lainey316 wrote: »

Ah - it's meant to be the same house? Sure you'd be using your savings to get a better house! That's what I'm doing with mine anyway.

It doesnt matter if its the same house, same person, if they have saved like a hermit, lost their job or won the lotto.

Its about a weighing scale. On the left we have falling house prices, on the right we have increased cost of repayments

The scale is pretty much level taken over the last 5 years

Theboinkmaster

dmclean1842 wrote: »

Ok in 2006 you could get a tracker mortgage of 3.5%:

Monthly repayment: €1,337.95
Mortgage amount: €300,000
Interest rate (APR): 3.5%
Term: 30 years
Cost of Credit: €181,663.29
Total cost of loan: €481,663.29

Now in 2011 you cant get a tracker and the interest rate is about 6.5% and we will say that house prices decreased by 33%

Monthly repayment: €1,239.78
Mortgage amount: €200,000
Interest rate (APR): 6.5%
Term: 30 years
Cost of Credit: €246,319.24
Total cost of loan: €446,319.24


Not much of a saving plus I believe that the 6.5% rate will go up and up.

I still disagree - you can play with the nos to give you the result you want. 33% is far too conservative when you can easily have a high (2007) to low (1996 levels) of the market decline of up to 70%. The above example only shows a €20k saving but if you change the price of the property to €500k in 2006 and assume a 50% decline, which is far more realistic, you get a saving of €250k which is very significant:

2006

Monthly repayment: €2,229
Mortgage amount: €500,000
Interest rate (APR): 3.5%
Term: 30 years
Total cost of loan: €802,772

2011

Monthly repayment: €1,549
Mortgage amount: €250,000
Interest rate (APR): 6.5%
Term: 30 years
Total cost of loan: €557,899

And yes as the variable rate goes up so too will the tracker as ECB rates normalise over the next few years.

user1842

Theboinkmaster wrote: »

I still disagree - you can play with the nos to give you the result you want. 33% is far too conservative when you can easily have a high (2007) to low (1996 levels) of the market decline of up to 70%. The above example only shows a €20k saving but if you change the price of the property to €500k in 2006 and assume a 50% decline, which is far more realistic, you get a saving of €250k which is very significant:

2006

Monthly repayment: €2,229
Mortgage amount: €500,000
Interest rate (APR): 3.5%
Term: 30 years
Total cost of loan: €802,772

2011

Monthly repayment: €1,549
Mortgage amount: €250,000
Interest rate (APR): 6.5%
Term: 30 years
Total cost of loan: €557,899

And yes as the variable rate goes up so too will the tracker as ECB rates normalise over the next few years.

Average house prices have not decreased by 50%. They probably will in the future but at that stage interest rates will probably be 10%. Therefore your second calculation works out as €761,000 not 557,000

Also a variable rate mortgage will always increase a lot more than an ECB tracker. The Bank will try and make as much money as possible off VRMs. For every .5 increase the ECB makes you will see a 1% to 1.5% increase in the variable rate until the banks start turning a profit, which will not be for a long time.

I am playing with the numbers just a much as you are but I wish I was as optimistic as you.

Unrealistic

dmclean1842 wrote: »

Average house prices have not decreased by 50%.

It's quite likely that they have decreased by 50%. We don't have hard data on sales prices but it is widely accepted that asking prices have decreased by more than 40%. It is also generally accepted that houses today are sold a discount to the asking price but, at the peak of the boom, they were sold at a premium to the asking price. Therefore the drop in actual sales prices should be wider than the drop in asking prices at both ends so 50% seems like a very reasonable estimate. Anecdotally, estate agents are also quoting 50% as the actual price drop to prospective sellers.

user1842

Unrealistic wrote: »

It's quite likely that they have decreased by 50%. We don't have hard data on sales prices but it is widely accepted that asking prices have decreased by more than 40%. It is also generally accepted that houses today are sold a discount to the asking price but, at the peak of the boom, they were sold at a premium to the asking price. Therefore the drop in actual sales prices should be wider than the drop in asking prices at both ends so 50% seems like a very reasonable estimate. Anecdotally, estate agents are also quoting 50% as the actual price drop to prospective sellers.

I think some house prices have dropped by that much and even more (apartments, houses in the middle of nowhere) but other second hand houses in areas people want to live have not.

You right though that we dont know. The sooner the governments selling price database comes along the better. It will answer all questions.

Unrealistic

dmclean1842 wrote: »

I think some house prices have dropped by that much and even more (apartments, houses in the middle of nowhere) but other second hand houses in areas people want to live have not.

You right though that we dont know. The sooner the governments selling price database comes along the better. It will answer all questions.

That is the nature of averages; some examples are higher or lower. Check out http://www.thepropertypin.com for examples of drops of 70%+.

The government database will answer some questions (if it ever sees the light of day) but not all. They legislation does allow for it to be backdated to show historical transactions but it would need to show twenty years of historical data to get the full picture of the rise and fall. If it only goes back six months we'll know where we stand now but we'll still be speculating about how steep the actual drop from peak to trough was.

Theboinkmaster

dmclean1842 wrote: »

Average house prices have not decreased by 50%. They probably will in the future but at that stage interest rates will probably be 10%. Therefore your second calculation works out as €761,000 not 557,000

Also a variable rate mortgage will always increase a lot more than an ECB tracker. The Bank will try and make as much money as possible off VRMs. For every .5 increase the ECB makes you will see a 1% to 1.5% increase in the variable rate until the banks start turning a profit, which will not be for a long time.

I am playing with the numbers just a much as you are but I wish I was as optimistic as you.

I suppose what im trying to illustrate is the fact that i was in a position to buy in 2005 and chose not to, having researched IMF reports etc and knowing the crash was coming, and am now hoping to buy in the next 3-5 years when i think things will nearly bottom out. I'm trying to justify that i was right to wait even though i could had a tracker in 2005 but will be on variable when we eventually do buy. And i still think we made the right decision - and as another poster mentioned, what's not included in these calculations is the fact that we're now saving the difference between rent and what mortgage would be to save a healthy deposit, further reducing the eventual mortgage.

user1842

Theboinkmaster wrote: »

I suppose what im trying to illustrate is the fact that i was in a position to buy in 2005 and chose not to, having researched IMF reports etc and knowing the crash was coming, and am now hoping to buy in the next 3-5 years when i think things will nearly bottom out. I'm trying to justify that i was right to wait even though i could had a tracker in 2005 but will be on variable when we eventually do buy. And i still think we made the right decision - and as another poster mentioned, what's not included in these calculations is the fact that we're now saving the difference between rent and what mortgage would be to save a healthy deposit, further reducing the eventual mortgage.

I agree totally with you, im in that same position. Im just sick of people saying that houses are so affordable now as they have dropped by around 40 to 50%.

They are only affordable if you get a good interest rate (which you wont) and have a massive deposit. For me that means waiting another few years before I can buy.

Also im not saying that buying in the height of the boom was a good thing, not at all. As what I have failed to mention is negative equity and that people who buy now and in the future will not be trapped in their homes.

I believe prices need to drop a lot more and hopefully interest rates will not increase too much. I would like to buy my own home at some stage. I hate renting as the quality of rented houses in Dublin is appalling and they are overpriced.

If the government wants people to rent, they will need to bring in legislation like in Europe and the US so tenants actually feel their rented house is their home. We are backward in the respect.

Diarmuid

One other point, I realise the banks are in a bad way now , but there's no way there will be a 3% spread on mortgage rates for the two scenarios for the full 30 years of the mortgage.
And 33% is way too conservative. Looking at IPW and you'll see falls typically in the region of 45%

loyatemu

whats your point here - unless you have a time machine you can't go back and get a tracker mortgage now.

The difference in overall interest rate over 30 years between a house bought today and a house bought in a years time is going to be marginal, so if you think the price is going to drop significantly you might as well wait, if you don't (and I think in some areas the bulk of the drops have already occurred, but in other areas there's still a way to go) then you might as well jump now.

Chipboard

the corpo wrote: »

Odd one this,

Put an offer on a house late last year. We were the highest offer, but at the time too low for the owners. We left the offer with the estate agents, saying to let us know of any further developments.

The house went sale agreed today and have heard from a neighbour that the owners have accepted an offer significantly lower than the one we left them with.

We have bid on 6 houses in the last two years. Three of them have been reduced to less than our bids and not one of the three auctioneers has come back to us to see if we're interestedl.

Shower of useless muppets.

Unrealistic

Chipboard wrote: »

We have bid on 6 houses in the last two years. Three of them have been reduced to less than our bids and not one of the three auctioneers has come back to us to see if we're interestedl.

Shower of useless muppets.

Been there too.

The Rooster

Chipboard wrote: »

We have bid on 6 houses in the last two years. Three of them have been reduced to less than our bids and not one of the three auctioneers has come back to us to see if we're interestedl.

Shower of useless muppets.

I feel sorry for any business that goes bust. Except for auctioneers. Never came across any other business with so many incompetents involved.