PowerSwitch

Hi all,

Am new to the forum and to peak oil in general and a little bit stressed! Am based in Ireland and my boyfriend and I are buying a site to build on. We're planning to build as low energy a house as we can afford. What I'm really scared about is the mortgage. Have read in some places that if oil continues to go up, then inflation in Europe will keep going up and the ECB will have to raise rates. That won't fix the problem because it can't fix the supply, so they could keep raising rates and I know they'll have no concern for tracker mortgage holders in Ireland!

What I'm wondering is do people think that the above will happen? And if so, should I fix my rate, maybe for 5 years? That's what I'm thinking of at the moment, because we couldn't afford a big increase in rates, and this acre is my big plan for the future... I know we've overpaid for the site, but couldn't convince my other half to wait for prices to come down.

I know no one has a crystal ball, and the Bank of England operates differently, but would really appreciate people's opinions..

Difficult call I am afraid

If you look at the US - they have decided "to hell with inflation" and brought down rates anyway to try and maintain growth (and soften the housing market debacle)

What will the ECB do when crunch time comes? - do the choose a deflationary mess by raising rates (led by housing)? or do they copy the US and lower rates and ignore inflation (or more likely change the measure of inflation to make it look low!)

God knows...

It seems that higher rates for the next decade or longer is certain.
You might be better off signing up and asking in www.globalhousepricecrash.com.

It may be impossible to make such predictions reliably. You have to recognize that what you want to know is, in principle, unknowable, so plan your life accordingly.

Welcome to PowerSwitch and good luck with your building project, Mallow.

Personally I would go for a 10 year fixed rate. Rates are historically low at the moment. They won't go much lower, but they may go a lot higher. I remember when they were 12%!

Are you still able to alter your build? Perhaps you could build a straw bale house. It would be considerably cheaper. I'm reading this guide at the moment. It is very practical and quite inspirational. (DODGY TAX AVOIDERS link)

The head of risk at work, has just bought his house on a 25 year fixed rate. I personally wouldn't touch a variable or tracker rate with a bargepole at the mo'.... rates are really rather low when you look at historic levels. To be honest I wouldn't really be buying somewhere either - but then I don't know the Irish market. Personally in the UK, I'm watching prices fall and think they have quite a way longer to fall. Still at least its shut my family up from nagging me to get on the ladder as if I don't now, I never will - even if I need to get a five times salary mortgage . They suddenley seem to have remembered that prices go down as well as up.

Miss Madam wrote:Still at least its shut my family up from nagging me to get on the ladder as if I don't now, I never will - even if I need to get a five times salary mortgage . They suddenley seem to have remembered that prices go down as well as up.

It's amazing how people I've been talking to for the last two years about the housing market crashing, people who totally disagreed, there'll never be a crash, too much demand, shortage of houses, government wouldn't allow it etc... Have now totally changed their tune and are now telling me that prices are falling! No suggestion that they were totally wrong 18 months ago.

The other thing that's strange is that according to Nationwide the last 7 months have seen prices fall at a faster rate than at any time during the '89-'94 crash and 2008 looks on target for a -13% correction (nominal). This is a faster, harder crash than last time, not that you'd know it from the media coverage.

clv101 wrote:not that you'd know it from the media coverage.

That doesn't bode well does it? I take that to mean that the fall is for fundamental reasons, rather than media hysteria or 'sentiment'. When I say bode well, I mean this could be a huge crash that would hurt even the prudent.

The more important question to ask is how you are going to pay the mortgage off. Property prices have been crazy in both Ireland and the UK for some years now. The average mortgage they say in the UK is around ?150K, which means repayments would be in the region of ?800 - ?900 a month for a repayment mortgage. Now I don't know what I will be doing in 5 years and as a single guy how could I commit to ?900 a month + bills for the next 25 years.. For couples this must put a terrible strain on the relationship...
Irish property prices fell 10% last year and the Irish banks are in even worse condition than in the UK.
You must keep your costs down and borrow as little as possible.

PowerswitchClive wrote:The more important question to ask is how you are going to pay the mortgage off. Property prices have been crazy in both Ireland and the UK for some years now. The average mortgage they say in the UK is around ?150K, which means repayments would be in the region of ?800 - ?900 a month for a repayment mortgage. Now I don't know what I will be doing in 5 years and as a single guy how could I commit to ?900 a month + bills for the next 25 years.. For couples this must put a terrible strain on the relationship...
Irish property prices fell 10% last year and the Irish banks are in even worse condition than in the UK.
You must keep your costs down and borrow as little as possible.

I did think it a little strange that the head of risk - presumably in something climate related? - thinks that a 25 year loan is a reasonable project to take on. Does he not believe in the work which his organisation does?

Obviously, we don't know his financial details, and it may just be a good deal, but I think that some of these long fixes have some vigorous penalty clauses for those trying to pay off early,


Peter.

To answer your other question - my opinion is that the ECB will in the short term hold or lower rates very slightly. The cost of the Euro is high and this is hurting their exports to the US, it is in their interests to devalue. Devaluing of course means fuelling inflation in the Euro Zone.
Regardless of this I think we are going to see much higher inflation across the world over the coming 5 years or so... Interest rates are historically low and relative inflationary rates in Western countries is still fairly low also. Western governments also tend to understate inflation. As commodity prices rise though and more radically over the next few years, there is going to be a panic and much much higher interest rates to try and get this under control. In the long term you do not want a variable rate mortgage and to be honest, you don't really want a mortgage at all.
Our governments will do there best to understate inflation and salaries will lag real inflation rates. In the past where inflation has wipe out debt, this is unlikely going forward in the medium term as salaries in real terms have been declining. Into the next decade expect higher inflationary pressures, much higher interest rates around the globe and higher unemployment. It is also possible that we will have deflation and inflation? Deflation in equity markets and things you want to sell and inflation in commodities and things we need to buy.
The things you need to look at ? How can we reduce borrowing and fix the interest rate..What savings do we have to see us through uncertain periods? Is it possible that one or both of us may become unemployed for a period of time??

Blue Peter wrote:
I did think it a little strange that the head of risk - presumably in something climate related? - thinks that a 25 year loan is a reasonable project to take on. Does he not believe in the work which his organisation does?

Peter.

The closer folk are to the climate change coal face (dreadful metaphor) the more worried they are about how it is going to pan out. He believes in the work we do, but not in the likelihood of clients following our advice i.e. "BAU is a dead end - change course.... oh ok then focus on your quarterly balance sheet and put your fingers in your ears...." paying off mortgages early may have been fine and possible before the 170% house price inflation we have seen in the last nine years, I should think for many today - even paying the mortgage is enough of a challenge. If I were daft enough to get a mortgage today, and become a brainless Kirsty and Phil zombie.... 'must get on the ladder, house prices can only ever go up...' I would definitely get a fixed rate.

Hi mallow

Can I take it you're in County Cork? No? I'm up in Clare, slowly renovating a small house on a huge patch of land.

I think a fixed five year mortgage is a good idea. Some lenders are doing ten year fixed still. Go for it. At the end of the term, you'll be able to 'shop around' and switch unless something has gone seriously awry with the system.

Nonetheless, I don't envy you with your aspirations in today's Ireland. Anything apart from the hastily thrown up concrete block trophy house tends to be desperately expensive. And getting the right advice for going down the green route can be impossible.

I can suggest is that you try to go for a small house, big vegetable garden and 'hard landscape' a usable, low maintenance growing area. Plant trees on the windy side as soon as possible to keep your heat losses down.

Most modern Irish houses tend to have at least two dozen windows. Even with double glazing, heat losses will be substantial through so much glass.

You're also, I assume, aware of the merits of orienting the house correctly and sizing the windows appropriately? Your planning office might take exception at first to such desires but go and talk to the people there and tell them what you're trying to do.

For insulation, there's hemp available from a firm in Athboy (Meath) and there's Ecocel in Glanmire (Cork) for recycled newsprint insulation. There's also sheepswool. All of them, you can install yourself at the appropriate point in the building.

Oh, and welcome to PS! Keep us up-to-date with your progress.

Thanks for all the replies!

I think we'll go for a 5-year fixed at 4.9%. Thought about a 10 year, but they're at 5.6% and am having a slightly irrational mental block about it.

Adam1, I thought about a straw build but my boyfriend won't consider alternative building methods at all. Also, I did hear that tests on a straw bale house in Ireland showed high moisture levels in the walls. Think might not get a mortage for it here.

I wouldn't be going ahead with this on my own because of both the housing bubble and peak oil, but my boyfriend is not at all convinced about the effect peak oil will have and there's no way I could have persuaded him to hold off as we love the site and got an ok deal.

To be honest it's hard to see how you could avoid a massive mortgage if you're young and want to buy land to build a house on in Ireland, we've waited years and couldn't keep putting our lives on hold for the bubble to deflate. And the price of land may go even higher if PO pans out quickly. It seems to me impossible to have land to grow your own food on while at the same time avoiding a mortgage. Especially for our age group who have no equity from the boom.

Miss Madam, I can't stand the 'property ladder' nonsense and we've never believed in it. I know we've overpaid. We just want a house to stay in, not trade up from, and land to be a bit self-sufficient. That's impossible without massive debt in Ireland for young people, especially near Dublin.

Good things are he has a very secure job in the civil service and pretty well paid. And we spend as little as possible and have some savings, though we have to pay massive (?8k) stamp duty and an ?11k tax to the local authority for imaginary services....

emordnilap, am in Meath actually, (name is about the sweets not the town!) Is very very hard to find land cheaply here and his job is here so can't move somewhere more reasonable. You're so right about the cost of building something decent, it's terrifying. And it's impossible to get proper advice about it without paying another fortune. You would think the government might try to help people to build energy-efficient houses but they just give you bland advice, 'insulation is good...' and a grant for a wood pellet boiler and send you on your way. We read conflicting stuff everywhere and to do it properly seems to involve making our mortgage even more of a millstone.

Thanks for the advice about the build, will look into the insulation. We have planning already and I lost the argument about making it smaller Have one acre so big garden for me which am planning already.
The other half is convinced about triple glazing, air tightness etc. though. The stumbling block is the cost.

Time to go take the blue pill now methinks...