Jim Nasium
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I asked this question on a few property forums and the best response I got was get the house valued.
I was hoping to get some thoughts on my situation regarding a mortgage, I know at the end of the day the decision is mine but I don't really know much about property, could do with hearing some opinions.
My girlfriend and her sister bought a house in East London (UK, not SA) at the beginning of 2007 with an interest only mortgage. Now her sister wants to sell and my girlfriend has asked me to buy her sister out with her.
I have some reservations regarding this. The way I see it, an interest only mortgage is a bet that prices will go up, and with the amount of interest you have to pay the value of your house needs to go up a fair amount to make it worth it. Also I feel that house prices are falling (or at least have hit a ceiling), and that to assume they will drop another 5 - 10% would be quite conservative by some experts views.
Lets say for example (and this is my best case scenario) house prices drop 10%, but as we all know in the long run property prices in London will go up so in lets say in ten years the credit crunch is over, consumer confidence is up, mortgages are easy to get again, the house is has hit break-even and even another added 10% in value. So in 10 years we have made 10% on the value of our house (25K), we are 40 years old and don't own a single brick of any house anywhere. I seems to me that we would be better off renting, which I think would make us at least £400 better off a month, save that money and in a few years we would have a healthy deposit to buy at a low in th market. In fact in five years we would have almost saved 25k, not including interest. I know rents are going up, but the gf said she and her sister are paying £1,300 a month interest, I am sure we can still find a flat to rent for £800 - £900 a month in London.
I know it seems like I have made my mind up already, but am I being pessimistic? I know the London property market might be a lot more resilient than the rest of the UK. I am very nervous about putting my hard earned money into a deposit when it could be wiped out in a matter of months, and instead of a profit I am stuck with negative equity and am paying £650 a month for the pleasure.
Any thought/suggestion would be greatly appreciated, before I suggest to my girlfriend she sell along with her sister I want to be sure I have my facts straight and I am not talking nonsense, everything I know I have read in the papers so some thoughts from people who are actively involved in property would be invaluable. She is going take some convincing, for some strange reason she thinks the Olympics (which are happening nowhere near) are going to push prices up which I don't see happening unless everybody who comes to watch decides to buy a house as well.
Thanks
I was hoping to get some thoughts on my situation regarding a mortgage, I know at the end of the day the decision is mine but I don't really know much about property, could do with hearing some opinions.
My girlfriend and her sister bought a house in East London (UK, not SA) at the beginning of 2007 with an interest only mortgage. Now her sister wants to sell and my girlfriend has asked me to buy her sister out with her.
I have some reservations regarding this. The way I see it, an interest only mortgage is a bet that prices will go up, and with the amount of interest you have to pay the value of your house needs to go up a fair amount to make it worth it. Also I feel that house prices are falling (or at least have hit a ceiling), and that to assume they will drop another 5 - 10% would be quite conservative by some experts views.
Lets say for example (and this is my best case scenario) house prices drop 10%, but as we all know in the long run property prices in London will go up so in lets say in ten years the credit crunch is over, consumer confidence is up, mortgages are easy to get again, the house is has hit break-even and even another added 10% in value. So in 10 years we have made 10% on the value of our house (25K), we are 40 years old and don't own a single brick of any house anywhere. I seems to me that we would be better off renting, which I think would make us at least £400 better off a month, save that money and in a few years we would have a healthy deposit to buy at a low in th market. In fact in five years we would have almost saved 25k, not including interest. I know rents are going up, but the gf said she and her sister are paying £1,300 a month interest, I am sure we can still find a flat to rent for £800 - £900 a month in London.
I know it seems like I have made my mind up already, but am I being pessimistic? I know the London property market might be a lot more resilient than the rest of the UK. I am very nervous about putting my hard earned money into a deposit when it could be wiped out in a matter of months, and instead of a profit I am stuck with negative equity and am paying £650 a month for the pleasure.
Any thought/suggestion would be greatly appreciated, before I suggest to my girlfriend she sell along with her sister I want to be sure I have my facts straight and I am not talking nonsense, everything I know I have read in the papers so some thoughts from people who are actively involved in property would be invaluable. She is going take some convincing, for some strange reason she thinks the Olympics (which are happening nowhere near) are going to push prices up which I don't see happening unless everybody who comes to watch decides to buy a house as well.
Thanks