Size of your Mortgage

[Pheo]

Bought just over a year and a half ago. £210k value, 95% LTV (help to buy). Have completed renovations and now worth £260k, so 74% LTV.

Just in the process of remortgaging so deciding what kind of deal to go for!

[audidoody]

I think the OP also does not understand the concept of "leverage" (i.e. using the lender's money to produce a return)

Eg:

Save £20,000 a year at around 1.2 per cent. After 12 months £20,000 has returned £2,400.

Buy a house for £500,000 with a £350,000 mortgage. Pay £20,000 a year in capital and interest repayments,

At the end of the year house has likely increased in value by 5% to £525,000.

After 12 months the £20,000 has returned £5,000 plus the value of the equity increase. The £20,000 remains invested in the house.


Why would a 50% mortgage freak anybody out? It's no different than investing in any other asset class with the HUGE advantage of no CGT

Edited by audidoody on Saturday 2nd April 13:38

[IATM]

audidoody said:

I think the OP also does not understand the concept of "leverage" (i.e. using the lender's money to produce a return)

Eg:

Save £20,000 a year at around 1.2 per cent. After 12 months £20,000 has returned £2,400.

Buy a house for £500,000 with a £350,000 mortgage. Pay £20,000 a year in capital and interest repayments,

At the end of the year house has likely increased in value by 5% to £525,000.

After 12 months the £20,000 has returned £5,000 plus the value of the equity increase. The £20,000 remains invested in the house.


Why would a 50% mortgage freak anybody out? It's no different than investing in any other asset class.

Sorry but I disagree with you, from my opinion it's a bit silly to only think of it in such simple terms. It's when people come on ph and say what car should I buy that won't lose money or make me money. There was so many other costs involved in purchasing a large house that any gain in the short to medium term is down right pointless.

Again you ARE assuming property values always go up. Sorry to burst everyone's bubble but that's just not the case. I have monitored the market for over 2 years now and making the assumption ALL HOUSES will go up is just rubbish. Yes generally they probably will and places like London is a totally different set of rules but not what I have seen in where I am looking.

Many many many people purchased a house with this same understanding that house prices will go up so we are quids in and they are sitting in negative equity.

I understand what you are saying but again it has some very strong assumptions.

[stongle]

IATM said:

Sorry but I disagree with you, from my opinion it's a bit silly to only think of it in such simple terms. It's when people come on ph and say what car should I buy that won't lose money or make me money. There was so many other costs involved in purchasing a large house that any gain in the short to medium term is down right pointless.

Again you ARE assuming property values always go up. Sorry to burst everyone's bubble but that's just not the case. I have monitored the market for over 2 years now and making the assumption ALL HOUSES will go up is just rubbish. Yes generally they probably will and places like London is a totally different set of rules but not what I have seen in where I am looking.

Many many many people purchased a house with this same understanding that house prices will go up so we are quids in and they are sitting in negative equity.

I understand what you are saying but again it has some very strong assumptions.

You seem a bit of a pedant, or looking for others to validate your PoV. It's an Internet forum, you haven't given enough specific info on region or house etc for anyone to make an informed opinion or talk in detail. Aside from dodgy maths (or typo),Audio is spot on with leveraged returns.

Sure there are examples of houses coming down in value all my over, employers closing up shop, areas over filling with mouth breathers, adverse planning decsisions etc - but one generally assumes your either unlucky or stupid to buy in these places.

Of course house price inflation is not uniform, and research is key. Different factors affect areas too, London has a supply and land bank issue.

The Govt initiatives to cool the mkt, should hopefully do just that as will banks correctly pricing risk and resource cost. Waiting for mega interest rate rises is a nonsense in todays global economy. QE and low / negative interest rates are causing reserves to go through the roof.

As long as you are careful or smart using leverage on property can yield gains - despite the fact a home is a home. I started with a Northern Rock 110% product. I've moved a few times, but every rate reduction I've had has just gone into overpayment. Today I'm approx 50% ltv on a 5 bed house in London. Equity growth through improvements and mkt rises. Couldn't have done that without leverage and if I loose my job could easily move and be mortgage free in surrounding counties.

[Old Merc]

IATM said:

audidoody said:

I think the OP also does not understand the concept of "leverage" (i.e. using the lender's money to produce a return)

Eg:

Save £20,000 a year at around 1.2 per cent. After 12 months £20,000 has returned £2,400.

Buy a house for £500,000 with a £350,000 mortgage. Pay £20,000 a year in capital and interest repayments,

At the end of the year house has likely increased in value by 5% to £525,000.

After 12 months the £20,000 has returned £5,000 plus the value of the equity increase. The £20,000 remains invested in the house.


Why would a 50% mortgage freak anybody out? It's no different than investing in any other asset class.

Sorry but I disagree with you, from my opinion it's a bit silly to only think of it in such simple terms. It's when people come on ph and say what car should I buy that won't lose money or make me money. There was so many other costs involved in purchasing a large house that any gain in the short to medium term is down right pointless.

Again you ARE assuming property values always go up. Sorry to burst everyone's bubble but that's just not the case. I have monitored the market for over 2 years now and making the assumption ALL HOUSES will go up is just rubbish. Yes generally they probably will and places like London is a totally different set of rules but not what I have seen in where I am looking.

Many many many people purchased a house with this same understanding that house prices will go up so we are quids in and they are sitting in negative equity.

I understand what you are saying but again it has some very strong assumptions.

Buying a house is always the best choice,firstly its your home,secondly its a LONG TERM investment.When your mortgage free in 20-30 years time you will be quids in.You can of course pay rent for the rest of your life.

Now this will make you young guys chuckle. I started in 1967 with £100 deposit on a house that cost £2700.Since then I`ve moved five times,been through all the hard times,mortgage interest rate hit 15%,been mortgage free for the last five years,happily retired in a house worth £600K.

[Grandad Gaz]

IATM said:

audidoody said:

I think the OP also does not understand the concept of "leverage" (i.e. using the lender's money to produce a return)

Eg:

Save £20,000 a year at around 1.2 per cent. After 12 months £20,000 has returned £2,400.

Buy a house for £500,000 with a £350,000 mortgage. Pay £20,000 a year in capital and interest repayments,

At the end of the year house has likely increased in value by 5% to £525,000.

After 12 months the £20,000 has returned £5,000 plus the value of the equity increase. The £20,000 remains invested in the house.


Why would a 50% mortgage freak anybody out? It's no different than investing in any other asset class.

Sorry but I disagree with you, from my opinion it's a bit silly to only think of it in such simple terms. It's when people come on ph and say what car should I buy that won't lose money or make me money. There was so many other costs involved in purchasing a large house that any gain in the short to medium term is down right pointless.

Again you ARE assuming property values always go up. Sorry to burst everyone's bubble but that's just not the case. I have monitored the market for over 2 years now and making the assumption ALL HOUSES will go up is just rubbish. Yes generally they probably will and places like London is a totally different set of rules but not what I have seen in where I am looking.

Many many many people purchased a house with this same understanding that house prices will go up so we are quids in and they are sitting in negative equity.

I understand what you are saying but again it has some very strong assumptions.

You've been monitoring the housing for two years? Is that all?

Surely a property purchase is for life, whether you stay in the one house or move up the ladder. Over 20 or 30 years, I can guarantee they will go up more than inflation. FWIW, my first house cost £3,250 in 1976. That's less than the value of our old Honda. how much rent do you think I would have had to fork out over the last 40 years had I not bought?

[Jimmy No Hands]

Mines sat on 84%. Can anyone beat that?


I'm poor, mind.

[Robertj21a]

IATM said:

Sorry but I disagree with you, from my opinion it's a bit silly to only think of it in such simple terms. It's when people come on ph and say what car should I buy that won't lose money or make me money. There was so many other costs involved in purchasing a large house that any gain in the short to medium term is down right pointless.

Again you ARE assuming property values always go up. Sorry to burst everyone's bubble but that's just not the case. I have monitored the market for over 2 years now and making the assumption ALL HOUSES will go up is just rubbish. Yes generally they probably will and places like London is a totally different set of rules but not what I have seen in where I am looking.

Many many many people purchased a house with this same understanding that house prices will go up so we are quids in and they are sitting in negative equity.

I understand what you are saying but again it has some very strong assumptions.

When looking at houses, mortgages and/or investment in property in general, you need to look much, much further than just a couple of years - try 10-15 years at least. On that basis, it's perfectly correct to say that buying your own house is likely to be an excellent investment. Clearly, if you are considering buying a property in a relatively deprived area then the low purchase price will reflect that it is much less likely to appreciate in value.

[paolow]

Jimmy No Hands said:

Mines sat on 84%. Can anyone beat that?


I'm poor, mind.

I bought my first flat at 94%
I sold it 7 years after for exactly what I paid for it which was disappointing - but I did at least recognise my position so I overpayed the mortgage by 100% for a couple of years to enable me to move.
After that I bought my current house at something like 90%+ LTV so I got an equally dismal interest rate.
The flip is that two years on we will be looking at that having dropped to 60% LTV with all we have done so all will be good from there when we remortgage. Painful at the time - but much better than going forward to retirement knowing that at least you have somewhere to live!

[markcoznottz]

walm said:

IATM said:

I was more curious at what the general population feel comfortable with when buying a house.

As long as I could afford it and I was in an LTV band allowing me the lowest possible rates (generally somewhere in the 65-70% range) I would happily lever up.

The "affordability" then is the problem.
The bank test is something like whether you could manage on a 5% repayment mortgage over 25 years.
I suspect the vast majority of the UK would be eating beans and rice if that actually happened.

[Crumpet]

SunsetZed said:

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.

That's pretty much the long and short of it for me! The monthly amount is pretty much the only thing I worry about and is why I fixed my mortgage over a long period with a relatively high interest rate. I'm happy to have the certainty of knowing what I'll be paying for years to come. It's also an amount that can be paid with a very average job due to the frequent uncertainty in my sector.

I still don't understand the OP's question as it doesn't really have a point - me saying I owe 50% on a £360,000 house is pretty meaningless without any other context. Presumably it all boils down to how much people are willing to have as their monthly payment, perhaps as a percentage of their income?

Edited by Crumpet on Monday 4th April 05:37

[walm]

Old Merc said:

Buying a house is always the best choice,firstly its your home,secondly its a LONG TERM investment.When your mortgage free in 20-30 years time you will be quids in.You can of course pay rent for the rest of your life.

This is also a finance fail. (Although not as bad as the guy who thinks 1.2% of £20,000 is £2,400!)

In normal environments, rental yields are usually very close to interest rates.
Say 4% each.

Which means the INTEREST ONLY part of the mortgage is close to the cost of renting.

It is completely WRONG to compare interest + principal vs. rent.
It is very very rarely that we have the situation we do today where interest costs are so low that these two figures happen to be comparable.

So in theory you could happily pay rent and SAVE what you would be spending on PRINCIPAL payments, generate a reasonable return on those savings and at the end of 25 years just BUY a house.

Again this ridiculous "rent is throwing money away" adage is BS: you either rent from the landlord or the bank - you have to pay someone (or if you own 100%, do yourself out of huge investment income).

However, the benefits of saving though the mortgage are legion:
- Fixed price of house (i.e. no risk that the house you want to buy in 25 years has gone up in price because the value of the mortgage is fixed).
- Fixed return, tax free. If you pay down the mortgage you guarantee a return equivalent to the mortgage interest rate.
- Very good discipline: people skip savings all the time but rarely skip on the mortgage.

[NRS]

Jimmy No Hands said:

Mines sat on 84%. Can anyone beat that?


I'm poor, mind.

I'm something like that. Bought my first house at 85%, sold it 6 months later but due to house price increases made a small profit despite the short time. More luck than anything though. Bought a new apartment for a little bit more in the place where I had moved to, but put a little more into the money so am around 84%. As part of the moving I got a deal with work that I only pay tax on the interest part of the mortgage, but cannot pay down the mortgage for 5 years. Therefore I can use the money saved to invest in other things and use that to pay off the mortgage at the end of the 5 years (around 2 years to go).

[Nickyboy]

When i bought my place 1 years ago mine was 90% LTV, now it's roughly 50%

didn't even think about it at the time, thankfully prices rose rapidly a year or so after i completed.

[gangzoom]

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?

If your lucky enough to have a 50% deposit on your first house your doing better than 99% of first time buyers.

I'm on my 2nd run of the housing ladder, and our current mortgage is about 20% arfter 7 years of overpaying 10% each year. We did have plans to clear it, but interst rates are so low on mortgages at the moment there's no point.

For our next move up the housing ladder we're aiming for a 41% deposit, so just enough to get us access to the cheapest interest rates.

[SunsetZed]

swerni said:

SunsetZed said:

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.
.

Your grandparents much be very young or had a bloody massive house, my folks paid £3000 for their house in the 60s when the average house price was £2500 and average income was £16 a week.

Neither actually, they lived in rented for a long time which I believe was a lot more common in those days.

[okgo]

Maybe I need to adjust my attitude to debt looking at this thread, I'd not think twice about going 80% with 5x salary on an expensive place, and we did go 90% on our first place, though I think less than 5x.

[kiethton]

okgo said:

Maybe I need to adjust my attitude to debt looking at this thread, I'd not think twice about going 80% with 5x salary on an expensive place, and we did go 90% on our first place, though I think less than 5x.

Yep...

First place was 5x salary (accounting for rent payments) at 90% LTV (on mortgaged portion) in 2013. Rent and mortgage plus bills accounted for ~60% of my take home at the time. To cap it all off I was being made redundant at the time of purchase!

Needless to say it all worked out very nicely, all payments were made easily as one of the two jobs I was borderline on accepting at the time came in and it went to only 4x income and ~40% of income.

Purchase currently with the lawyers is only 2.6x joint income @ 90% LTV (4.3x basic salary only) so easily affordable. After renovations I'll plan to get a 70-80% LTV at 4-4.5x salary whilst taking 10 years off the term and making broadly similar repayments.

[SunsetZed]

swerni said:

SunsetZed said:

swerni said:

SunsetZed said:

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.
.

Your grandparents much be very young or had a bloody massive house, my folks paid £3000 for their house in the 60s when the average house price was £2500 and average income was £16 a week.

Neither actually, they lived in rented for a long time which I believe was a lot more common in those days.

Ahh so they didn't buy till later in life.
Had the purchased in the 60's and not saved for a huge deposit, they'd be minted by now;) ( not saying they aren't anyway)

Absolutely,my family taught me to buy the most you can afford to pay for as soon as you can (unless a crash is anticipated in the near future, often not so easy to predict sadly!).

[emicen]

Bought my first place in 2008 at 85% LTV, the mortgaged element being ~3 times takehome.

8 years later its a 71.5%

Should have paid it down a lot over the golden years of mega low rates [current mortgage rate is 1.09%] but motor racing doesn't come cheap and I've made my choices in life