To ask you to explain 6% mortgages

[tokenname]

Maths is not my strong point, so grateful for any explanation of how higher mortgage rates work vs the value of a house I am looking to buy.

If mortgage interest rates are at 6% and are due to stay around this level for years, and house prices in my area are not rising by the same amount each year, effectively my house/mortgage is getting more expensive to pay for every year relative to the value of the house - wouldn't I be spending much more on the house than I'd aim to receive when it comes to selling it?
I know I'd be chipping away at the capital each year, but it still seems weird to me that mortgage interest rates are so high when the interest on easy access savings accounts etc. are at less than 6%. Basically my money would go less and less far each year.

Sorry if I've muddled things, please set me straight!

There aren't enough houses in the UK. Property proices will continue to reflect that unless we build an extraordinary number of new homes over the coming decades (Hint: we won't).

whereas I think cheap money has fuelled a lot of it as opposed to just supply. So many people have relied on huge equity growth to fuel that next move onto the ladder (I couldn't have moved up without it) but that rung is so high, stamp duty costs, frozen tax bands now that it's much harder to build equity & afford the next step up.

Well it is because eventually the mortgage is paid off and you own the house outright. If you rent you pay off someone else’s mortgage and never own the place. At least if you buy there’s an end to your monthly payments down the line.

Thanks all. I am looking for a place to live but it'll have to be in an unpopular area of the UK where house prices haven't risen much compared to places such as the SE - for various reasons but also because I can't afford the south if I want outside space. I have a 15% deposit so am hoping that's a fair chunk to help me if buying the property becomes the start of a long-term investment.

I understand it's better to buy than to keep on renting though, I wonder if I'm essentially paying the equivalent of 100% interest at the moment to the landlord without having an asset at the end of the term.

A lot of the advice is "go for a one bed flat to get you on the ladder" but flats don't seem to be increasing in value as much as houses, and having private outside space of my own is an absolute godsend...

How old are you OP? I personally would try & buy a small house & skip the flat stage in this climate.

@lovewoola I'm mid-30s, decent salary but will be buying on my own.

I also think trying to skip the one bed flat stage is a good idea in the current market if you can afford a two bed in a different area. I dont think there is much of a ladder anymore.

Then I would defo try & skip

Another advocate of skipping the flat if you can, especially as outside space is a priority for you.

I dont think there is much of a ladder anymore.

agree, there was a really good article about this in the FT a few yrs ago.

It's hard to know what the market will look like in 30 years, isn't it? This is what is making me dither about what the best area to invest in should be.
Yes there's a birth rate decline but I imagine any discrepancy in population will be made up with needed immigration workers, plus the climate crisis meaning the UK/northern Europe becomes more attractive... It sounds hyperbolic but I also wonder if the north will start to become more attractive when people are increasingly priced out of the SE plus flooding risks there...but then maybe that will make prices there stabilise. So difficult to imagine!

I think places like Leeds/Manchester will see further growth (I think they have over the last few yrs) as it's more affordable for younger people & increased hybrid working will spread the job market a bit.
I don't think you can really pick an area that's best to invest in; there are places not far from my parents that haven't seen similar growth & it was not nice when they originally bought there - high crime/pretty deprived.
We defo do need more immigration (I think the "natural" population is starting to decline now) but so do many other parts of the west so we need to be attractive to them & of course lots of people are anti immigration.

Why have you quoted someone telling them its not how it works and gone on to say exactly what they said (apart from a 9 and a 6 being mixed up which I would assume was a typo )

OP as it's just for you I'd buy a property that needs doing up (but not a new roof).

Buy the worst house on the best street, do a bit at a time yourself (YouTube is so godsend) if you can but pay professionals for electrics, gas and water.

Buy a property you want to live in for the next 5 years in an area you want to live in. For you, that’s probably a house with outside space not in the SE.

Buying a property is primarily a decision on where you want your home to be. It’s not a far-future investment decision. You need to live somewhere. You don’t want to keep paying rent.

This calculator is useful, you can see how much you’ll pay off each year and the total interest paid. They also have other mortgage calculators if you click on the drop-down menu, eg one you can calculate overpayments

https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

Don’t worry about 30 years time. That way madness lies! Buy a home.

I think it basically comes down to whether it's better to rent or buy. Short term, renting can be advantageous, allowing flexibility to move around, try different areas, and often afford something you might not be able to buy (eg nicer area or bigger place). Also you don't have to pay for the upkeep of the property. But at the end of your rental period you walk away with nothing.

So if you're living in the UK long term it's usually better to buy - monthly costs are usually comparable to renting, but there are extra costs at the point of purchase and sale (e.g. legal, bank fees, stamp duty etc).
You do have to keep some money aside for fixing a boiler or replacing the broken shower, but you are gaining equity in the property. At the end of the period when you sell up you should walk away with a chunk of money - how much that is, will be dependent on how long you lived there, how much you paid off (can you pay an extra £50 or £100 a month towards your mortgage?) and of course whether or not house prices have gone up and your property has increased in value.

In the current climate, if I was only planning to live somewhere a year or 2 i would rent, as the market is unpredictable especially outside London. But any longer than that it would probably be worth the added costs to buy.

If you are looking for a place to live, all the mortgage maths only matters insofar as to gauge whether you can afford repayments.

I bought my house last year, just before interest rates went through the roof. It's an ex council house in an undesirable area and it hasn't seen much love from its previous owner (who was a landlord who, by the look of it, didn't know the first thing about DIY but did it all himself anyway).

In short, it's in a bit of a state, but it's all I could afford as a single mum of 2, even on my reasonable income (not high by MN standards, but in the top 40% of total household incomes nonetheless, and that includes households with 2 earners, so I must be doing well).

I view this house as an expensive piggy bank. Each year, I put in money and each year, I have more money in the form of bricks than I would have had if I'd stayed renting. And all without the risk of having to move yet again because someone somewhere wants to sell up. No surprise rental increases, though I know that my next increase in the form of higher mortgage repayments will come soon.

But then I overpay to the tune of what I'd have to pay once my fixed repayment % runs out, so I won't feel the effect of the increase too much when it comes. I was stress tested to 11%, and as a single person you have to be prepared for some ridiculously high stress tests. I used a calculator to see that I could, at a push, afford 14% by cancelling all my non-essential outgoings.

If you're looking for a place to stay in for a very long time with all the security owning a house brings (not being pushed out, being in charge of repairs and how/ when they're carried out, even just veering away from fucking magnolia walls) then just take the plunge in any house that meets your space requirement. Forget the ladder, forget even location (one slum I used to live in used to be a place of high desirability just 25 years beforehand). All that can change. Does the place have decent proximity to everything you need? Go for it.

Wow. Had my house 15 years and it’s still worth less than I paid for it. I bought just as there was a price crash. It’s in the north and I was in negative equity for a while until I’d paid off a good chunk. I’ve now paid it off early but it’s still worth less than what I bought it for. It’s an old style property though in an area that’s exploded with new builds the same size which cost around 2-3 times what mine is worth.

@celticprincess I'm in the north east. We bought a 3 bed detached period property in a nice area in 2003 for £153K and sold it in 2018 for £165K. We did slightly better than the first owners who bought the house in 1922 for £890 and sold it in 1947 for £900! There is no guarantee house prices will go up and all you can do is remember you had the exclusive use of a house for X number of years.

People (particularly those in the south) still seem to think house prices will go up forever but that's just not true. We lived in the SE in the 90s and nothing was selling and nobody was prepared to drop their price because so many people had endowment mortgages and couldn't afford to go into negative equity.

Your mortgage is on the purchase price so
of it’s fixed for 5 years then you pay the same each year. House prices could go up or down… not linked to the 6% in any way.

Think of the 6% as “rent” payable to the bank to live in the house.

if you can pay off the equity then no more rent to pay.