Page 26 - Introduction to investing in Gold

The Beginner's Guide to Investing in Gold
has been going up, they’ve been on a fixed-rate mortgage, so interest rate increases have not impacted their mortgage repayments. But they’re about to – they’ve got to refinance.
Chances are, they’ll have to pay a lot more to cover the mortgage. If their mortgage rate used to be 2% and now it’s 6%, that’s a big increase in monthly repayments.
They might have got some pay raises to help, but I’d be surprised if they cover the difference. They’re really EXISTING rather than LIVING.
Along comes couple B. They want to buy the house, but they’d rather LIVE than EXIST. The only way they can do this is to offer a lower price.
Couple A has got a dilemma, do they accept the lower price or try and keep the house, which is very difficult if prices in the area are falling? If they sell, the new price becomes the benchmark for the area.
There are two points to note here:
1.There can be a significant time lag in the fall in price. Even though
interest rates have increased, it’s not until they come to sell that the new
price (for them) is crystallised.
2.The new price has been driven by affordability (not just supply and
demand).
Let me also point out what happens when leverage works against you. Let’s say couple A have saved up £50,000 for their £400,000 flat (so they borrowed £350,000). If the market tumbles 10%, their debt is the same, but the equity is now just £10,000:
Initial value of property = £400,000
New value of property = £360,000
Debt (remains the same) = £350,000
Equity (the difference between value and debt) = £10,000
It gets worse.
If they took out a £350,000 loan at 2%, that’s probably £7,000 of interest a
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