Is someone who bought at the peak with a tracker better off than someone buying now?

Delboy

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House prices may be at 2003 levels in Dublin 'on average'.....but there's no trackers now v's 2003-2007, no TRS.

So in effect, are we actually much closer to 2007 in terms of affordability?
 
House prices may be at 2003 levels in Dublin 'on average'.....but there's no trackers now v's 2003-2007, no TRS.

So in effect, are we actually much closer to 2007 in terms of affordability?

OK, let's look at the affordability

Johnny, a first-time buyer, bought a house at the peak in Q3 2006 for €549k + 6% stamp duty = €580k

For ease of comparison, assume he took out a 106% mortgage over 30 years at ECB + 1%.

His repayments today would be around : €1,970 a month.

And his capital repayments have brought the mortgage down to €460k!

Mary rented. Today she can buy the same property for €390k
The repayments on €390k over 22 years at 4.5% are €2,300

So he is about €300 a month better off at the moment. I thought he would be still regretting the purchase but not by much. Is there some flaw in my calculations?

What was their cash flow like over the last 8 years? I assume that the rental payments would have been less than the mortgage repayments? But probably not by a lot. TRS will have brought his net repayments down.
 
Simple comparison, but tells a story.
Rents may be high now but fell from 2008-2012, while mortgage rates were much higher then they are now. So I would say the renter worked out a lot better, cash flow wise, during that period.
 
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Obviously, this only works because they bought with a cheap tracker. If they bought with an SVR mortgage, they are deeply regretting the purchase.

I used an example, for someone who bought at the peak. If they bought even one quarter away from the peak, the difference is quite significant - house prices were 9% lower than the peak in the previous and succeeding quarters.

I used the average price of €549k which attracted 6% stamp duty for first time buyers. If they paid below €381k, they paid 3% stamp duty. If they paid over €635k, they paid 9% stamp duty. Were new houses exempt back then? (If they bought after 31 March 2007, first time buyers were exempt)

The current advantage will reduce or disappear if SVRs drop. In my view, they are excessive at 4.5% and will come down at some stage. Or an ECB rate rise may increase the rate on trackers which does not get passed on to SVRs.

If Johnny wants to move, he could lose his tracker completely or keep it at a higher rate which again would reduce or wipe out his current advantage.
 
Today she can buy the same property for €390k
The repayments on €390k over 22 years at 4.5% are €2,300

Is it still possible/possible again to get a 100% mortgage, though? To buy a house worth €390k, she wouldn't be getting a mortgage for that amount, surely.
 
Hi Janet

No it's not. But I have assumed 100% mortgages to make the calculations comparable.

But that leads onto another interesting point. John got a mortgage to buy a house for €549k. It might well be more difficult for Mary to get a mortgage for €390k today as lending criteria have tightened.

Brendan
 
This is an interesting post Brendan and to some extent the comparative figures are startling. It might in turn raise the point as to why Johnny is now well in arrears with his mortgage while Mary is comfortably paying her new mortgage. The likely difference between the comparative parties is their residual income levels. Johnny in 2006 was only in a position to borrow that amount because the Bank/BS assessment procedure was "light touch". No stressing of repayments and no real in-depth analysis of his income. Mary recently went through a much more stringent assessment process before approval. A residual income comparative would likely reveal that she has significantly higher level of surplus funds available to meet repayments than Johnny.
Given a choice I suspect Johnny would prefer to have been refused his high mortage by the Bank which would in turn have meant that the house he bid on went to the under bidder. This in turn if applied across the board would have kept house prices at an affordable level rather than inflating them on the back of unaffordable levels of bank loans.
While acknowledging the broad tenor of your comparatives I would question the use of "better off" as applicable to Johnny's position.
 
Hi 44b

That is why I questioned my own figures - there is a big negative to being in negative equity.

Only about 10% of borrowers who bought at the peak with a cheap tracker are in arrears. I suspect that many of them can well afford to pay, but choose not to. Most who bought at the peak are paying off their mortgage in full and maybe paying a bit more besides.
 
Which would I prefer?

A mortgage of €460k at ECB +1% or a mortgage of €390k at 4.5%

The interest on one is €4,600 while the interest on the other is €17,600.

With an interest saving of €13,000 a year, I think I would pay the €70,000 up front for it. If I stay in my home for at least 6 years, and the interest differential doesn't reduce, I will be quits after 6 years.

If I think I might outgrow my home within 10 years, I would prefer the €390k SVR mortgage.

But I suppose the key issue is that those who bought at the peak with a cheap tracker are not in the deep, deep trouble that I had initially assumed.
 
Compare two FTBs, and the situation looks even better still for the boom-time tracker buyer, who didn't have to pay stamp duty back then, if I recall correctly.

Assuming ability to make repayments, I think the biggest down-side for boom-tracker-buyer is being held prisoner in a home that doesn't suit them, as their tracker is too good to give up.
 
Compare two FTBs, and the situation looks even better still for the boom-time tracker buyer, who didn't have to pay stamp duty back then, if I recall correctly.

Assuming ability to make repayments, I think the biggest down-side for boom-tracker-buyer is being held prisoner in a home that doesn't suit them, as their tracker is too good to give up.

Well, I wouldn't call them a 'prisoner'....they do have a choice, even if it results in a heavy hit on the pocket
 
The Central Bank has published a study which provides new data on this issue.

[broken link removed].

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I have only had a quick look at it, and find it very difficult to digest.

Table4 highlights the median installment, median
interest rate and median loan size for mortgages
with Tracker, SVR and fixed interest rates.
It can be observed that Tracker loans have the lowest
median installment at e756 per month while the
median installment on SVR and xed rate loans
amounted to e775 and e834 respectively. While
there are differences between these medians, they
do not appear as divergent as would be expected
considering the much lower interest rate applied
to Tracker loans. One explanation for this result
is also evident in table4. The median balance
is much higher for Tracker loans thus offsetting
some of the effects of lower interest rates.

While Tracker loans have the highest outstanding
balances, this is related to the fact that such
loans were mainly originated during the height of
the credit boom period when house prices were
highest and credit conditions were at their loosest.
In fact these loans are no longer available to
new borrowers. Thus the average balance for new
loans, which are provided on SVR or fixed rates,
is lower given the falls in house prices since 2008.
It is informative therefore to consider the differences
in financial burden for borrowers with different
mortgage interest rate contracts who took
out their mortgage in the same year. This is presented
in Figure5. Figure5:A indeed shows that for
the borrowers who took out loans during the peak
years of the credit boom (2005-2008), the difference
in installments between SVR or fixed loans
and Tracker loan is much larger than suggested
by the overall sample medians. As interest rates
are virtually identical within each rate type over
time (as seen in5:B), any variance in installments
mainly reflects dffierences in outstanding balances
across mortgage contract types over time.

Finally, to further explore the differences in financial
burdens between mortgage holders of different
rate types, we undertake the following exercise.

We ask: Are borrowers who currently live
in an identically-valued house facing a different financial
burden due the type of interest rate they
face on their mortgage? This assessment abstracts
from considerations of when the borrower took out
their mortgage and focuses more on the unit of
housing that they consume today. To answer this
question, in figure6 we plot the median installment
for borrowers with different interest rate type
mortgage contracts against the current value of
their property. The chart indicates that for properties
valued up to circa 330,000 Tracker borrowers
have lower installments relative to SVR. However,
for houses valued over 330,000 there is no difference
between the installments for SVR and Tracker
borrowers. The installments for borrowers on fixed
rate loans are higher across nearly all points of the
current house price distribution than both Tracker
and SVR borrowers.
 
Brendan,

I think you comparison of the €549k and €390k is good to look at the current monthly position but I think we need to look deeper at the period between when johnny bought and now.

Would it be fair to say that in 2007 and 2008 Johnny could have been paying €3000 per month? While Mary was putting away something for her deposit? So it make any difference?

By the pool in Portugal so can't do the calculation.
 
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You left out one very important piece of information "Mary rented", that makes a big difference. Because you've left that important part out you can come to any conclusion you want.

Realistically you would have to pick Mary as she is not in negative equity.
 
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2 1/2 years on with huge rents and house price increases, and an even fuller appreciation of the value of trackers, it would be very interesting to redo this exercise.

Brendan
 
2 1/2 years on with huge rents and house price increases, and an even fuller appreciation of the value of trackers, it would be very interesting to redo this exercise.

Brendan
No point in reviewing this old thread, its almost 11 years since the peak, those on trackers have enjoyed low interest rates for the last 5+ years and are probably 1/3 through their mortage. (if they overpaid due to low rates, term would be reduced further)
Anyone buying now faces huge deposits which are impossible to save for whilst renting.
Deposits were never an issue in the boom with 92% or 100% mortgages available.
The goalposts have changed.
 
Yes, but that just illustrates that the person who bought back then and who's crying into his/her Hendricks and tonic is actually in fine fettle.
 
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