Are Boom time buyers better off than today's first time buyers ?

landlord

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I unfortunately bought in 2006 and am trying to figure out if I am better off over the term of my 30 year mortgage with 1 % above ECB tracker, than someone who borrowed an amount that would buy an identical property at today's prices with an average standard variable rate.
If my mortgage in 2006 was 450000 and today my property (and mortgage required )is 60% less. I.e. 270,000, after a 30 year term assuming rates remain unchanged (unlikely I know), would I be better off?
Maths boffins..... Thank you
 
Interesting, €450,000 over 30 years at 1.5% is a repayment of €1,550 per month €109,000 in interest.

€270,000 over 30 years at 5% is a repayment of €1,449 per month €251,000 in interest. So they would be €36,000 better off in pure cash terms.

Ignoring the divergence is future interest rates, time value of money ect.
 
Yeah, today's buyer is obviously better off but not by as much as most people would imagine.

NB: This is assuming the boom-time buyer bought their 'forever' house in the boom time (this now applies to quite a few people through necessity due to the negative equity they're in).
 
I unfortunately bought in 2006 and am trying to figure out if I am better off over the term of my 30 year mortgage with 1 % above ECB tracker, than someone who borrowed an amount that would buy an identical property at today's prices with an average standard variable rate.
If my mortgage in 2006 was 450000 and today my property (and mortgage required )is 60% less. I.e. 270,000, after a 30 year term assuming rates remain unchanged (unlikely I know), would I be better off?
Maths boffins..... Thank you

Hi there, interesting question.

If the property is valued at 60% less though then the mortgage required would be less than 270k as there would have to be at least a 10% deposit given.
So today's buyer would have a mortgage of 243k. Also today's best SVR is 4.39. Using this calculation the monthly payment is 1,215.

So I think where today's buyer loses is of course the higher interest rates, but where he gains is having 335 Euro extra in his pocket each month.
 
The person who bought in 2006 also has 7 years of mortgage payments made.
 
Don't forget the TRS. A first time buyer in 2006 would have received 11 years of tax relief at source.
 
This is a really interesting question.

The original mortgage having 7 years done is not relevant. But the TRS is relevant. Would the salary be different. If starting in a chose field 7 years ago and now have a different salary, I think they would be lower. Would the deposit be different. Higher deposits now.
 
So it appears that today's buyer is better off, but not by much when compared to someone on a good tracker who has received TRS.

I suppose another thing worth considering when looking at 25-30 year mortgages at either ECB + 1% or else the current SVR of circa 4.5% is that the person on the higher rate gets a guaranteed return in excess of inflation on overpayments whilst the person on the tracker needs to look elsewhere to get good returns as opposed to simply making overpayments.
 
I think that you need to forget the deposit and assume a 100% mortgage.

You bought a house for €500k 7 years ago which today is worth €200k.

For simplicity and ease of comparison, let's assume that the first 7 years were interest only.


I have a choice of buying a house with a €200k mortgage today at 4.5% or to take over a mortgage of €500k @ECB + 1%.

Instinctively, I will buy today with the 4.5% mortgage.

€500k @1.5% for 23 years is €2,143

€200k @4.5% for 23 years is €1,164

So I am saving €1,000 a month for 23 years.

I also have the huge advantage of flexibility. I can trade up or down as I am not in negative equity.
 
I don't think that the TRS comes anywhere close to changing the decision.

The non buyer will have paid rent of around €15,000 a year for the last 7 years, while the buyer will have paid around €7,500 per year interest.

Combined, these narrow the gap a bit, but not nearly enough.
 
I have a choice of buying a house with a €200k mortgage today at 4.5% or to take over a mortgage of €500k @ECB + 1%.

Instinctively, I will buy today with the 4.5% mortgage.

€500k @1.5% for 23 years is €2,143

€200k @4.5% for 23 years is €1,164

So I am saving €1,000 a month for 23 years.

I also have the huge advantage of flexibility. I can trade up or down as I am not in negative equity.

Shouldn't the comparison be both mortgages over 30 years? If you manage to overpay the 'extra' 1K on the 4.5% mortgage it will be worth a lot more than if you had over paid on the 1.5% mortgage.
 
I am not sure, but I don't think so.

The Key Question is "Landlord bought a house 7 years ago. Would he be better off today had he waited until now to buy?"

So you have to compare like with like.

Landlord bought a house in 2006 on a cheap rate with tax relief.

Bronte decided not to buy.

Now compare the two today.

So look at Bronte's position from 2006. He has paid rent for the last 7 years, while Landlord has been paying interest.

Landlord has a much bigger loan, and as it happens bigger repayments.

The end result has to be the same i.e. both mortgage free in 2036, so compare the repayments on a 23 year mortgage for Bronte.
 
If you manage to overpay the 'extra' 1K on the 4.5% mortgage it will be worth a lot more than if you had over paid on the 1.5% mortgage.

I would include this as another minor advantage of the buying now decision.

To compare them, you must assume that both pay off their mortgages on schedule over 23 years.

But today's buyer has the big advantage of flexibility. They can pay off the mortgage quicker.

Come to think of it, there is another minor advantage in having bought in 2006. If the borrower gets into trouble, they can probably reschedule the mortgage at a very cheap rate. So I think that these two minor advantages cancel each other out.
 
So you have to compare like with like.

Landlord bought a house in 2006 on a cheap rate with tax relief.

Bronte decided not to buy.

Now compare the two today.

So look at Bronte's position from 2006. He has paid rent for the last 7 years, while Landlord has been paying interest.

.

But Landlord may have rented for 7 years prior to buying.
 
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