Size of your Mortgage

[Muzzer79]

IATM said:

SunsetZed said:

Maybe the UK's not for you then, there are many other countries with cheaper property which could help you with this quandry...

Right so the UK is not for me becasue I dont want to be financed to the hilt and be in debt and negative equity; working until my bones are falling apart because I was stupid enough to take out a 200k mortgage and pay back the grubby banks 380k back with interest payment over 25 years.

Yeah lets all live the dream, muppet

The posters on your thread didn't create this problem, so I don't think referring to them as 'muppets' because they highlight it is constructive.

So, what are your other options then, genius?

You don't want to be financed to the hilt, so work until your bones are falling apart to pay rent to a grubby landlord for the rest of your life?

At least with a mortgage you own something at the end of it. How much that something is worth can be debated and debated but over a 25 year term it's highly unlikely it'll be worth less than you paid for it.

So, rent a £250k house for 25 years and end up with nothing or finance a £250k house and end up with at least £250k?

Yes, a mortgage is a risk but if you think long term, that risk is very highly mitigated.

My house is "worth" about 25% more than I paid for it. Do I care? Not a jot - I have no need to sell it so it's worth now is immaterial. It's value will rise and fall over the coming years - I expect that from a long term investment.

[SunsetZed]

IATM said:

SunsetZed said:

Maybe the UK's not for you then, there are many other countries with cheaper property which could help you with this quandry...

Right so the UK is not for me becasue I dont want to be financed to the hilt and be in debt and negative equity; working until my bones are falling apart because I was stupid enough to take out a 200k mortgage and pay back the grubby banks 380k back with interest payment over 25 years.

Yeah lets all live the dream, muppet

Thanks, glad you appreciated my response, incidentally I'd suggest that unless you take on the mortgage hit I'll be looking at you and thinking muppet as you'll spend far more than that on rent, or you'll realise this in a few years time having watched prices rise and spent money rise and then pay far more than the £380k.

Others have now put it in real terms for you. But to keep it brief; the UK is a rich country with an established housing market with, debate-ably, but in most areas, fewer houses for sale than there are prospective buyers so in the short term prices are not going to drop significantly (Yes interest rate rises could cause this but they aren't going up significantly any time soon).

So for most people without large amounts of capital it's quite straightforward there are 2 options;
1) Rent
2) Take on a significant percentage (and often financial amount) of mortgage debt

Oh and I didn't say anything about negative equity, on the contrary (and I don't know where you're based so this may be a factor in your think) I think that if you bought now anywhere in the South of England then you'd have increased equity based on rising house prices in 5 years time.

Oh and I was being tongue in cheek with what I said but point remains, unless you come into money via say inheritance then you will not get on to the mortgage ladder without taking on the mortgage debt (at a level you can afford, don't over-stretch yourself I'm not suggesting that) and the sooner you accept that the better your financial situation will be later in your life.

[IATM]

Muzzer79/SunsetZed - in spectacular PH fashion both you near enough ignore my opening post and have went to great lengths to assume significant factors in providing your opinion, I understand what you are both saying but doesnt really relate to me, Sorry!

First and foremost this is not a topic or discussion about renting vs mortgage; if that was the case I would say I rent at the moment and have done for 4 years or that I am sick of paying a "grubby" landlord as you put it.
That is not the case at all, not even close. I won't get into a debate with both of you as I want the topic to stay on track however just want to make it clear your assumptions are wrong. I am not renting and have a small property which is mortgage free and running costs are minimal however it is too small and I want to move to a large family home.
My current situation allows me to save considerable amounts which certainly outweight any gain by a HUGE margin on property value that would be gained in a year or 3 years time.

Everyone else: thank you very much for your replies it is really interesting to see that some did take out a relative large mortgage and some didnt need to; even more interesting is that once some do get most of the mortgage paid off they do it all over again to maybe get something nicer or bigger.

I understand everyones circumstances are different and it depends very much on what you earn. At the moment for me its a case of buying a 200k house having a tiny mortgage or having a 400k house and having a medium/large size mortgage.

[Nick Grant]

Back in 2001 we took out a 100% mortage on our first house. Didn't think too much about it at the time.

[kiethton]

Took my mortgage at 90% ~20 months ago. Just about to exchange at an amount that puts my LTV at 61% with nothing done beyond painting.

I'm now buying another place at 90%, but this time a full renovation. By the time i'm done the initial mortgage should be about 60% again (67% inc. costs of refurb) but I plan to draw back up to 75-80% to pay off the debt I'll accumulate doing so and possibly treat myself to a non-depreciating sports/super car whilst I can (I'm in my mid-20's). From looking around you can still get ~1.3% for 2 years @ 75-80% which will allow me to maintain current payments and take 10 years off the contracted term (my current rate is ste!).

Only thinking of doing it now as I know that in 2-3 years time i'll likely have to get into a proper house and cut back significantly to do so. I live frugally, have a stable job with a decent and growing income so might as well treat myself whilst I'm in the position to comfortably cover the mortgage whilst enjoying myself.

[SunsetZed]

IATM said:

Muzzer79/SunsetZed - in spectacular PH fashion both you near enough ignore my opening post and have went to great lengths to assume significant factors in providing your opinion, I understand what you are both saying but doesnt really relate to me, Sorry!

OK fair enough, I missed what you were trying to get out of the thread but if you'd explained the opening post the way you just explained the one above then you would have got different answers, at least from me

IATM said:

Everyone else: thank you very much for your replies it is really interesting to see that some did take out a relative large mortgage and some didnt need to; even more interesting is that once some do get most of the mortgage paid off they do it all over again to maybe get something nicer or bigger.

I understand everyones circumstances are different and it depends very much on what you earn. At the moment for me its a case of buying a 200k house having a tiny mortgage or having a 400k house and having a medium/large size mortgage.

I'm not surprised that people had different percentages to start, my grandad put down £2,500 as the deposit on the house he used to live in, that was a 33% contribution, my parents put down £3,000 which was 20% and whilst these were large deposits using earned capital they were not exactly unheard of. Nowadays with the way house prices have gone a 10% deposit on a property is a real achievement. Oh and interest rates have varied a lot over the last 60 years, how they may change going forward is a big point to look at if you're thinking about LTV %.

The point that is most important is not about the percentage and the debt amount it is what you can afford to pay and what you are happy to pay. For example some people will take on a large mortgage because they have realistic expectations of salary increases during their careers, others may be well paid and know that if they lost their job they would struggle to get the same income again, these are the kind of things that should be factored in to what can be afforded.

[RizzoTheRat]

You could even get 110% mortgages around then as the lenders were so sure that the house prices would continue to rise. As one commentator put it, it meant that on the day you moved in to your new house you owned less of it than you did on the day you initially viewed it

[walm]

IATM said:

My current situation allows me to save considerable amounts which certainly outweight any gain by a HUGE margin on property value that would be gained in a year or 3 years time.

At the moment for me its a case of buying a 200k house having a tiny mortgage or having a 400k house and having a medium/large size mortgage.

I think you might be doing the math wrong.

For you to be right (even at a breakeven level rather than by a "HUGE" margin) your house price needs to rise LESS than the interest rate you pay on the mortgage.

It's very simple maths but almost no-one understands it.

So in your example.

House prices go up 2.5% in a year let's say.
So your £200k house (assuming zero mortgage) is worth £205k and you have made £5k.

In the £400k example, you take out a £200k mortgage and have £200k equity.
In this case you make £10k on house price appreciation.
BUT you have to pay the mortgage, which is on a 2.5% rate, so net, you make £5k and are breakeven between the two examples.

What "HUGE SAVINGS" you are making right now is utterly irrelevant.
I suspect you might be one of those people who can't understand the difference between principal repayments and interest cost and thinks "oh no, my mortgage payments are huge", forgetting that a good chunk of those payments are actually SAVINGS.

[sidicks]

IATM said:

I am not renting and have a small property which is mortgage free and running costs are minimal however it is too small and I want to move to a large family home.

How did you manage to acquire the 'small property' in the first place?

IATM said:

My current situation allows me to save considerable amounts which certainly outweight any gain by a HUGE margin on property value that would be gained in a year or 3 years time.

Highly unlikely - What you are missing is that, through a mortgage, you gain leveraged exposure to the property market, and are therefore highly unlikely to be able to beat leveraged property returns with another investment (without taking massive risks).

Of course this only makes sense if the return on property exceeds the interest cost on the mortgage!

IATM said:

I understand everyones circumstances are different and it depends very much on what you earn. At the moment for me its a case of buying a 200k house having a tiny mortgage or having a 400k house and having a medium/large size mortgage.

So owning a house worth £200k outright gains you 5% return if prices increase by 5%.
Owning a £400k house with a £200k mortgage gains you a 10% return if prices increase by 5%
Etc

Edited by sidicks on Thursday 31st March 16:26

[walm]

sidicks said:

So owning a house worth £200k outright gains you 5% return if prices increase by 5%.
Owning a £400k house with a £200k mortgage gains you a 10% return if prices increase by 5%

No.
In the £400k case you need to reduce the return by the amount you pay on the mortgage over the time it takes for prices to rise 5%.

[sidicks]

walm said:

No.
In the £400k case you need to reduce the return by the amount you pay on the mortgage over the time it takes for prices to rise 5%.

Agreed !

[Lostprophet]

When I bought the house we had a 75% LTV, this was 3 years ago. I guess its sitting at 50% now due to value increases and three years of normal repayments

[mike9009]

Bought our current house in late 2007. LTV was 60% then and now is about 30%. Aim to pay off in 6 years time.

Our first house (1998) was LTV of 95%. To be fair I have not really been bothered by the LTV, more the monthly payments and whether it was a) cheaper than renting and b) affordable.

[Robertj21a]

IATM said:

Hi All,
Having thought about what I would like to do in the next few years the idea of having a big mortgage freaks me out. When I say big I mean even 50% of the value of the house seems high to me!

I understand it depends on the value of the house etc and your earning but generally what are people doing in terms of equity/finance mix?

You do realise that many first time buyers used to get mortgages of about 90%, or more ?

Over the long term it is still usually better than renting.

[e600]

Monthly mortgage payment on interest only is currently £1.52. Until the lender removes the early termination fee, plus admin charge plus some other make believe charge I will continue to pay the monthly direct debit.

[Downward]

100% over 35 years at 6.2% back in around 2007.

Some great financial advice there.

Fix it for 5 years the advisor said, With a 2nd child on the way and the household income down by £600 a month while the wife was on Maternity leave it seemed like a good idea at the time.

Edited by Downward on Thursday 31st March 20:55

[Downward]

RizzoTheRat said:

You could even get 110% mortgages around then as the lenders were so sure that the house prices would continue to rise. As one commentator put it, it meant that on the day you moved in to your new house you owned less of it than you did on the day you initially viewed it

Our friends earned around £50k and bought a new build 4 bedroom detached house costing 200k back in 2004. A family friend who was a financial advisor got them a good mortgage. Granted they had around 20k deposit.
The house now is worth God knows how much.

[jinkster]

Took out a 30 year mortgage on a £165,000 property (my first house) with 10% deposit in 2010. £122,000 left to pay and will be clear in 6 years at the rate I'm paying it off.

Just about to buy another house value of £470,000 and 85% LTV - will be overpaying too but not as quick!

[Matt_N]

LTV when we bought last August was 58%, should think it's around 51% now.

This is our second house, first we bought at 81% LTV and moved out 10 years later with 45% LTV.

[Craikeybaby]

15% deposit when we bought the house 3 years ago. 3 years of overpayment, renovation and pricerises mean that we have around 40-50% equity now, and have increased our overpayments.