House prices fluctuating regardless of low interest rates

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House prices fluctuating regardless of low interest rates

That said, few people and particularly not first-time buyers decide to move or to buy their first property simply because the general economic circumstances look propitious. Around a million people buy property every year and it is probably fair to say that most of these purchases are not 'timed' but depend on other circumstances, for example marriage, moving to a different area for reasons of employment, moving after retirement or trading up as a family grows.

Prospective first-time buyers should not be put off buying because house prices do not seem to have risen a great deal over the last couple of years or so: owner-occupiers are in the majority these days and for most people there is simply no sensible alternative.

Although it seems as if inflation is on a downtrend at the moment, even relatively low rates of inflation can do wonders to the real value of your mortgage payments. Below shows how the 'real' value of a fixed payment of £1100 diminishes - even at what we feel are 'low' rates of inflation - given time.

Table 2 How the 'real' value of a fixed payment of £1100 diminishes at various rates of inflation

Years 4% 5% 6% 7% 8% 9% 10%

1 96.15 95.23 94.33 93.45 92.59 91.74 90.91

2 92.45 90.70 88.99 87.34 85.73 84.17 82.64

3 88.89 86.38 83.96 81.62 79.38 77.22 75.13

4 85.48 82.27 79.20 76.28 73.50 70.84 68.30

5 82.19 78.35 74.72 71.29 68.05 64.99 62.09

10 67.55 61.39 55.83 50.83 46.31 42.24 38.55

20 45.63 37.68 31.18 25.84 21.45 17.84 14.86

25 37.51 29.53 23.29 18.42 14.60 11.60 9.23

What the table assumes is that payments will remain fixed in monetary terms. This is not to be relied on, of course: although the capital you have borrowed remains fixed, the interest rate is not.

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Price of Property outside the scope of first-time buyers

Inflation, then, has in many ways been kind to owner-occupiers. Table 1 shows how house prices have risen since 2000 It can be seen that there have been two great 'leaps' first in 2002 to 2004 and the second in 2008 to 2010 In between these surges, however, there have been slack periods where prices on the whole have risen more slowly than the rate of inflation. Buyers who have benefited most are those who have timed their purchase just before one of the periodic jumps in house prices. . . .... see: Price of Property outside the scope of first-time buyers

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