Tuesday, 2 September 2008

Holy House Prices, Batman!

So the news that the level at which stamp duty kicks has been raised to £175,000 is of only mild interest. Ok, so it could save me a couple of grand, that's nice, but at the end of the day it's not going to change my life.

No, I'm interested in this talk of a 30% "free" loan on the deposit. Tell me more!

First up, I think that anyone who goes for this and doesn't have a deposit is asking for trouble. That's where we are now - people with 95%-110% mortgages - borrowing that same amount of money from two places ain't gonna be a huge help, IMO.

But hang on... Will this be interest-free? Let's say I'm looking at a place worth £175,000.

No stamp duty. That'll save me £1,750. Whoo. Rock on.

Now, hang on a minute though... What else are they talking about? Up to 30% loan? Interest-free for five years? What's a typical variable mortgage rate? 6.4%? Work those sums through - 30% of £175,000 is £52,500. What happens to that amount if we were paying 6.4% interest on it over five years? And let's not forget that it will be compound interest...

Year 0: £52,500
Year 1: £55,860
Year 2: £59,435
Year 3: £63,238
Year 4: £67,286
Year 5: £71,592

That's £19,092 of interest over five years. Let's just round it up and call it twenty grand, shall we?

Twenty thousand pounds saved over five years.

That's one hell of a lot more interesting than a couple of grand saved on stamp duty!

I mean... Are my sums right here? Am I missing something? I for one will certainly be watching for more details to be released on this!

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