First-Time Buyer Lorenz Curves (2020) | Hacker News Reader

First-Time Buyer Lorenz Curves (2020)

doodles.mountainmath.ca

138 pointsluu37 comments

As a young person on the horizon of starting a family the only reason I want to buy in my country (UK) is due to how renters are treated. I've had a total of five landlords in my young life - and they have all (and I understand this is anecdotal and not everybody's experience) been different shades of exploitative/incompetent. I don't want to have to live with the boot heel of some lucky idiot on my neck. I don't want to have to have my day-to-day life beholden to the bizarre whims of a random who doesn't need to prove that they are sane, competent, or empathic enough to be a landlord.

Renting is not a functioning market in the UK, the quality of the landlord is now my biggest concern and this information is kept completely hidden. If I was a policy maker I would implement a landlord license and setup an independent review site for those landlords so that tenants can leave reviews of their tenancy.

I rented 3 different flats from 2006-2008, and 3 different houses from 2011-2016, ranging from a brand new flat to a conversion in a 1850s house to grade 2 cottage from the 1700s.

Can't think of any issues with landlords, but then most of them were dealt with by a management company (estate agent or whatever).

I rented out my own flat (which I'd bought in 2008) from 2011-2016 and let the letting agency sort the management. I certainly didn't hear of any issues, occasional bills for plumbers, gas checks, replacement appliance, were taken from the rent, but otherwise it just worked.

The primary reason to buy for us though, as well as being far cheaper (£350pcm mortgage interest vs £800pcm rent), is the security of tenure. If your landlord wants to sell up, or dies, then you might find yourself needed to rent a house with a couple of months notice, which means you might not be able to find anywhere near to your kids schools, or afford it if you can.

renting "somewhere in zone 2" is very different to "renting in the small village you live in". Currently there is just 1 house within 5 miles of mine, but it's in a different council area (so different schools etc). It's also more than the total price of a 90% mortgage on the house value (not just the interest part, the repayment part too)

The worst part about the UK (specifically London, not 100% sure about the rest), is that even when you buy a property (assuming it's a leasehold), then you're again at the mercy of the freeholder. Depending on your lease - you'll still be paying rent (ground rent) in addition to service charge and building insurance. Technically, you're only 'renting' the property for the lifetime of the lease. All from probably someone who was merely lucky enough to have been born into an aristocratic family, or a money-hungry company.

It's an embarrassingly archaic and unfair system. God forbid working families want to own their own home/land in this country (city).

And there are fun leasehold arrangements like "The ground rent doubles every 5 years"

Starting from a peppercorn value, this quickly amps up to hundreds of thousands, or even millions, of £ a year.

It's the wheat and chessboard problem[1] made concrete

[1] https://en.wikipedia.org/wiki/Wheat_and_chessboard_problem

Is leasehold that common outside of London?

My parents own their property as freehold, and it's only an hour from London by train.

Tbh, I just ended up emigrating as the property market was so bad it felt hopeless.

Leasehold is pretty much guaranteed for flats, outside of Scotland. Of course flats might be more common in London than elsewhere.

There are leasehold houses but I believe these days they are actually outlawed for new builds; of course builders found other creative "solutions" to extract rent even from freeholds, which are not protected by leaseholder rights.

This is precisely what forced me to buy a house in India. The 2nd landlord decided to sell the house within a month of moving and said I’ll be at the mercy of the new landlord. I had it enough and bought a house even though I had to stretch in terms of monthly mortgage payment.

I'm in the top 30% income bracket in the country I live in. I would need to spend 2/3 of my monthly income for 30 years on a mortgage to buy a 3-room flat (for a small family) in the city I live in. But first I need another ~3 years to save enough for the down payment.

It feels monumental and I think I will rather move to the countryside (grew up there anyway) and try to find another job there. I can build a big house there for half the price of a 3 room flat here.

I honestly don't know that to tell the lower 50% of the income bracket. They have no chance in this game. They will perpetually have to pay rent, distributing 1/3 of their income to someone richer than themselves.

Housing in Toronto goes up 2k a week. The average price is over 1 million. Unless you inherit Grandmas house, you aren't buying shit on your salary in Toronto. The crisis is now spilling over to all of Ontario. I don't even know what you have to bring home after taxes to save up for a down payment. Most houses are well over 1 million. The house I bought in 2005 for $440k could fetch around 1.2 million today with multiple bids and I guarantee that it will be torn down so a new home can be built on the lot. A new home in my area goes for 2.5 plus million and they can't build them fast enough.

https://www.blogto.com/real-estate-toronto/2021/05/toronto-l...

You need to stop that Chinese funny money. Along with the USA.

(In the USA any foreigner can pick up a phone, or send an email, and buy our real estate. I can't think of any other country that all allows such easy buys. Now---they arn't suspose to live in them, but it always seem like they do.)

> and they can't build them fast enough.

Which has generally been the problem: lack of supply given current population growth.

> I would need to spend 2/3 of my monthly income for 30 years

But it is not 2/3 of your income for the entire 30 years.

Even if it is 2/3rds of your income right now, the mortgage payment only ever goes down due to the three factors of inflation, refinances and (hopefully) raises you get over the decades. Compare to rent which only ever goes up.

Interest rates can rise, which would increase the mortgage. Also, buyer's income could fall at some point in the next 30 years.

Do banks actually take any interest rate risk? In Romania, there are a few offering a fixed interest rate.

In India the fixed rate is about 2-3% above the prevailing rate (I.e., 12-13% as opposed to 10%) so they kind of pass in that risk to the borrower.

Also here, “fixed” means that the rate is subject to change at fixed intervals as opposed to whenever the central bank changes the prevailing interest rate.

The majority of mortgages are 30 year fixed. The rates don't change and you would be insane to not get a fixed rate mortgage right now with rates at ~3%.

> The majority of mortgages are 30 year fixed.

*in the US. US ≠ World. In other jurisdictions in may be different, and since the article is in a dot-ca, they're in Canada, so things are different.

In Canada the amortization is 25-30 years, but most people don't get mortgages with a term that is greater than 5 years. You then renew at that point.

Where are you getting a 30yr fix from? London, 15yr fixes like 4.5% or something equally silly, 10yr also expensive, 5r common. 30, unheard of for retail mortgage?

In America, lifetime fixed rates are normal.

In the UK the norm seems to be 2 or 5 years. There are 10 years too, and 3 or 7, but I haven't see a 15 year fix.

I'm looking at a new mortgage and trying to decide between a 2 year mortgage (in 2 years I'll have a lower LTV so better rates) and a 10 year (which is slightly more expensive in the short term - 5% extra or so - but will be far more expensive in the long term, unless interest rates go up).

So it's up to me to hedge based on where I think interest rates will be. Might split the difference and go for 5 years.

Yes, I feel lucky to have secured a 5 year mortgage at a low interest rate in UK.

In the meantime in Italy you can get extremely low 20-30 year fixed rate mortgages.

UK rates

65% LTV will give you a 1.95% for 10 years

90% LTV 3.99% for 10 years

60% LTV for 1.44% for 2 years

90% LTV 3.09% for 2 years

85% LTV 2.59% for 2 years

Alas I no longer have my baserate + 0.25% 25 year interest only tracker mortgage

Options for a 250k house with a 90% (225k) mortgage at 3.09% for 25 years

Fixed for 2 years, you pay £1,077.54 a month.

By year 2 you're down to £212,683, and assuming no crash in prices, but no gain either, you can remortgage to an 85% rate (for the sake of £200 of overpayments - or £8.33 a month)

If rates don't increase in that time, you're then on a 23 year 85% mortgage, fixed for 2.59% for 2 years, your monthly payment drops to £1,022.69

By year 4 you're at £198,621 you're down to 80% LTV and can remorgage to 1.89% on a 21 deal for the next 2 years, your monthly payment drops to £962.16

By year 6 you're at £184,183 you're down to 75% LTV and can remorgage to 1.44% on a 19 deal for the next 2 years, your monthly payment drops to £927.94

No more steps so assume that lasts for 4 years

Total costs over 10 years is £117,960, and you're left owing £149,532

Now instead go for the 3.99% 10 year one and you're paying 3.99%, which leave you owning £160,499 and costs £1,186 a month, so total cost of £142,320

So that 10 year fix costs 36k extra, including 24k in cash.

If house prices go up over the next 10 years your LTV will drop even more quickly so you'll same more money with remortgaging - even with a £1k product fee every 2 years.

So the reasons to fix for 10 years would be

1) You think interest rates are going to shoot up to the point that getting a 3.99% rate on a 2 year fix will be tricky even with a lower LTV

2) You think house prices will crash, meaning your LTV will increase, and you won't be able to get off the standard variable rate

Given in the UK, house price collapse is the most likely think to cause a government to fall, I don' think the 10 year fix makes sense.

I'm already mortgaging at a a good LTV, so I do not expect it to fall further in the next 5 years and I'm willing to pay the premium in exchange to the lower risk although probably financially is not optimal.

But my point is that in Italy I could get a 20 year mortgage with a ~1% fixed rate for the whole period, which is lower than the same LTV UK 2 year rate, which is crazy. I can't believe that the risk of default is generally significantly lower in Italy.

I wonder if it's possible to arbitrage this

> Interest rates can rise, which would increase the mortgage.

Mortgages are nearly always fixed rate, so that can't happen. That's the beauty of a mortgage, it can only ever go down, never up.

But you're right in that variable rate do mortgages exist, but it would be very foolish to ever take one. Don't do it. Always go fixed rate, you can always refinance down if the opportunity arises, or stay the course if not.

In the US, a 30 yr fixed is the "standard", and even that is not the overwhelming majority that it used to be, with ARM and other financial engineering. Also, The ARMs tend to be lower rates than fixed in the US.

My experience holding mortgages over the last 20 years in the states, ARMs were a strictly better option and would have saved me a ton of money, even with Refis by paying down the principle faster.

But, The last 20 years are unlikely to continue, as it's been a long term decreasing interest rate environment, and there's a limit to how long and far that can happen.

Elsewhere, fixed rates are the exception. And oddly, fixed rates are cheaper in Ireland at least, but with the caveat that you're stuck with the mortgage for the time of the fixed term, unless you are willing to pay a penalty. Forex, I could have had a ~4.x%~ 3.7% adjustable, or a ~3.5%~ 2.9% fixed for 3 years. Amortizations being what they are, the ~3.5%~ 2.9% rate pays down much faster.

(edit -- just checked the actual current rates, which are probably closer to accurate than my just post coffee memory)

The article is about Canada, which has 5 years maximum mortgage term. After 5 years, you need to renew your mortgage at whatever interest rates are currently available.

> which has 5 years maximum mortgage term.

Not maximum, but most typical. You can get, e.g., 10 year mortgages:

* https://www.ratespy.com/best-mortgage-rates

Yup. If housing drops and/or interest rates climb it will get interesting in Canada:

- you basically refinance every 5 years at max. If you’re underwater on a house, the bank will ask for cash to hit the desired loan-to-value.

- If rates go up you’ll need to be able to afford the higher payments or no mortgage. Luckily they are doing a “stress test” and you need to qualify at 5.XX% today. So there is buffer.

- most of Canada has recourse loans. If you sell and don’t pay off the mortgage, the bank can come after you for the difference.

The fixed rate thing makes a big difference. I'm based in the UK, where most banks only offer fixed rate up to about 5 or 10 years. Interesting that it seems to vary by country.

Long term fixed rates are a major public policy objective in the US; they are much less common where that is not the case.

A good rule of thumb for mortgages right now is "Can I still afford this if interest rates go up by 5%?" That would (approximately) double the monthly cost for me...

Small nitpick: with a mortgage, you pay rent (interest) to the bank for the money you borrowed. However, the interest you pay to the bank is usually less than the equivalent rent (the principal you pay back goes into your pocket by decreasing your debt).

More importantly, the interest you pay goes down over time (unless you took the risk of a variable-rate mortgage). It goes down because you pay down the principal, it goes down in real terms because of inflation, it hopefully goes down relative to your salary, and (at least historically) it goes down relative to market rents.

This is a great article. It's odd we all call it a "housing crisis". It's a "housing dream" for 50%+ plus of the population. And a "crisis" for only like 10-20%. This is not an issue that gets fixed. This is an issue that only gets better if you're on the winning side and worse if you're on the losing side.

According to the dictionary: a time of intense difficulty or danger, a time when a difficult or important decision must be made. If 10%-20% of the population has serious housing problems, that's a crisis in my book.

It’s a crisis for all of us, even homeowners, because it imposes massive drag on the economy. Much of economic growth is driven by people relocating from low productivity regions and firms to high productivity regions and firms.

When housing costs explode, there’s no way for that to happen. New entrants have no way of getting on the property ladder in HCoL areas with high paying jobs. We all lose out from the stuff that doesn’t get made and the innovation that doesn’t happen because IT help desk specialists at regional banks can’t become data scientists at tech startups because they can’t afford to move from West Virginia to Seattle

Almost all of NZ's parliament owns multiple homes. It's a bit of a joke.

It should be noted that Canada has some of the highest home ownership rates in the world, almost 70% (in 2020 and highest in last 30 years).

https://www.canadianmortgagetrends.com/2019/03/homeownership...

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