BoE investigates 'terrifying' rise in borrowing to fund new car purchases

[Sour Mash]

8 minutes ago, iamnumerate said:

People can argue with simple maths, when I moved up the property ladder a few years ago and a colleague told me that I had done well out of rising prices even though maths showed that I have lost approx £30k (because the property I bought had gone up more than that one I sold) she seemed very reluctant to agree with me. She said "at least prices didn't go down"  - even though I would have been better of if they had gone down very slightly.*

(*Too much would have been bad because of negative equity and entry level properties would have dropped most of all).

Yeah, the 'property ladder' and HPI is the craziest public misconception of all.

Rampant HPI makes it more expensive to move up the ladder and harder to get on it in the first place.  It's a bad thing if you have aspirations to 'get on the ladder' or if you want to 'move up the ladder'.

Yet ever increasing house prices are touted as a great thing for new buyers and existing homeowners, no-one ever seems to bother to point out the inconvenient, mathematically demonstrable truth.

They are only of  benefit if you are trading down/cashing out which the average person isn't doing.  

 

[iamnumerate]

3 minutes ago, Sour Mash said:

Yeah, the 'property ladder' and HPI is the craziest public misconception of all.

Rampant HPI makes it more expensive to move up the ladder and harder to get on it in the first place.  It's a bad thing if you have aspirations to 'get on the ladder' or if you want to 'move up the ladder'.

Yet ever increasing house prices are touted as a great thing for new buyers and existing homeowners, no-one ever seems to bother to point out the inconvenient, mathematically demonstrable truth.

They are only of  benefit if you are trading down/cashing out which the average person isn't doing.  

 

It is very very easy to show in excel obviously you only get approx values but the money is scary  £30k is a lot of money after tax etc.

[Democorruptcy]

1 hour ago, Sour Mash said:

The issue is that it turns out he has a Merc on finance and has taken general criticism of how finance has lead to many people taking on silly amounts of monthly expense (that they wouldn't have done if it wasn't hidden behind the structure of monthly payments), as a personal attack on him.

Venger was just doing his 'people have free choices' bit. Like he does with houses, so Venger was being consistent. I think Venger might do the same if you suggested people were being sucked into buying anything, even if he didn't lease or own one. 

[Sour Mash]

9 minutes ago, Democorruptcy said:

Venger was just doing his 'people have free choices' bit. Like he does with houses, so Venger was being consistent. I think Venger might do the same if you suggested people were being sucked into buying anything, even if he didn't lease or own one. 

Suckered - not sucked.

 

Of course people have free choices - but they are still being suckered by cheap finance into spending more than they otherwise would and running brand new cars every three years.

A bit like how people are suckered, by apparently low monthly payments on 2 year fixed mortgages in a near-zero interest rate environment, into borrowing massive amounts of money to buy overpriced property.

Yes, they have free choices.  No-one is saying they don't.  But they are making poor choices, enabled by low interest rates which are deliberately suppressed precisely to encourage people to take on ever more debt.

[Democorruptcy]

15 minutes ago, Sour Mash said:

Suckered - not sucked.

 

Of course people have free choices - but they are still being suckered by cheap finance into spending more than they otherwise would and running brand new cars every three years.

A bit like how people are suckered, by apparently low monthly payments on 2 year fixed mortgages in a near-zero interest rate environment, into borrowing massive amounts of money to buy overpriced property.

Yes, they have free choices.  No-one is saying they don't.  But they are making poor choices, enabled by low interest rates which are deliberately suppressed precisely to encourage people to take on ever more debt.

Sorry I got that "sucked" from you! It was in your next paragraph that I didn't quote last time.

Quote

If you can afford to, or are prepared to take the financial hit, and really want to get a new car every 2-3 years or just drive something nice for a couple of years on lease, fine - choose the way of doing that that suits you best.  But the issue is that lots of people have been sucked into the 'must have a flash new car like everyone else' mentality simply because monthly finance hides the overall cost of funding new car depreciation (which is considerable).

Your apology is accepted.

[zugzwang]

3 minutes ago, Sour Mash said:

Suckered - not sucked.

 

Of course people have free choices - but they are still being suckered by cheap finance into spending more than they otherwise would and running brand new cars every three years.

A bit like how people are suckered, by apparently low monthly payments on 2 year fixed mortgages in a near-zero interest rate environment, into borrowing massive amounts of money to buy overpriced property.

Yes, they have free choices.  No-one is saying they don't.  But they are making poor choices, enabled by low interest rates which are deliberately suppressed precisely to encourage people to take on ever more debt.

It's hard to say whether a lifestyle choice is poor or sound without reviewing that individual's circumstances. What matters more is how those choices aggregate across the whole of society. This is the responsibility of the lenders, the regulator and ultimately government. Given that the UK is as indebted today as it was in 2007, despite borrowing a trillion pounds and printing half a trillion more, it's clear that the opportunity afforded by Keynesian debt substitution to re-set the economy has been utterly squandered. The implications for the country's future prosperity are stark.

[wsn03]

3 hours ago, Sour Mash said:

The issue is that it turns out he has a Merc on finance and has taken general criticism of how finance has lead to many people taking on silly amounts of monthly expense (that they wouldn't have done if it wasn't hidden behind the structure of monthly payments), as a personal attack on him.

If you can afford to, or are prepared to take the financial hit, and really want to get a new car every 2-3 years or just drive something nice for a couple of years on lease, fine - choose the way of doing that that suits you best.  But the issue is that lots of people have been sucked into the 'must have a flash new car like everyone else' mentality simply because monthly finance hides the overall cost of funding new car depreciation (which is considerable).

 

Even when you try to buy without finance, the dealer will do their best to try to get you to take it on as I found out when I bought my current car.  I pointed out that even the astoundingly low rate that they were offering me was about 4x what I'd be 'making' by having the cash in the bank instead.

 

Thanks for explaining, and I think me and Venger are good ...soon as I get those leaflets printed . I will get the wife's car on Finance because its much newer than anything I would buy for me, and the interest rates are ridiculously low - plus I don't want the outlay in one hit. Getting a car on Finance isn't the issue, the debt people are taking on without realising or being able to afford it is, with it being stigmatised as normal.

I have a few friends who have bought new, said the dealers tried hard to get them onto Finance instead, a bit like kitchens I suppose, the profit is in the finance not the car?!?

Just for the record I couldn't give a hoot who drives what, as long as they're happy its their business. I enjoy my old banger as much as I expect I'm going to enjoy my 10 year old XKR. I do get an ironic pleasure in being in a banger, its a great leveller, brings me down to earth. Also for the record I have 3 cars, but they cost together less than one new family saloon - I make careful choices bargain hunting. Its not very efficient but I love the contrast driving each one. I buy cars 5 / 6 years old and keep them for years and years, the savings I've made since I've been doing this afford me the luxury of the XKR (finally!).

Mate of mine has just bought a top of the range BMW (well leased it actually). I asked him, now that he's been in it a few weeks does it feel any different to his previous Mazda, or does it just feel the same now. He said it just feels the same now he's used to it. When I step out of one car into the other its a big difference, I get that wow factor every time. I think that's why I like mainly driving the old banger!

Edited April 26, 2017 by wsn03

[wsn03]

2 hours ago, Sour Mash said:

Yeah, the 'property ladder' and HPI is the craziest public misconception of all.

Rampant HPI makes it more expensive to move up the ladder and harder to get on it in the first place.  It's a bad thing if you have aspirations to 'get on the ladder' or if you want to 'move up the ladder'.

Yet ever increasing house prices are touted as a great thing for new buyers and existing homeowners, no-one ever seems to bother to point out the inconvenient, mathematically demonstrable truth.

They are only of  benefit if you are trading down/cashing out which the average person isn't doing.  

 

Only the baby boomers, but they've had so little given to them out of the system that they deserve the rewards of this housing boom...said nobody ever.

[iamnumerate]

1 minute ago, wsn03 said:

Only the baby boomers, but they've had so little given to them out of the system that they deserve the rewards of this housing boom...said nobody ever.

It is bad for baby boomers who care about their children having decent housing - but that might be a minority.

[wsn03]

48 minutes ago, Sour Mash said:

Suckered - not sucked.

 

Of course people have free choices - but they are still being suckered by cheap finance into spending more than they otherwise would and running brand new cars every three years.

A bit like how people are suckered, by apparently low monthly payments on 2 year fixed mortgages in a near-zero interest rate environment, into borrowing massive amounts of money to buy overpriced property.

Yes, they have free choices.  No-one is saying they don't.  But they are making poor choices, enabled by low interest rates which are deliberately suppressed precisely to encourage people to take on ever more debt.

^^^ this, what I was trying to say but obviously failed!

[wsn03]

1 minute ago, iamnumerate said:

It is bad for baby boomers who care about their children having decent housing - but that might be a minority.

I watched an interview with Baby Boomers, they were being quizzed about what they wanted out of the budget a few weeks ago on some morning show.

Out of the 6 or 7 of them a couple said how lucky they'd been to be born as a boomer with all the financial benefits of the way things were for them (houses, pensions etc), but only 2 said things were really bad for the children and young generations, citing it as unfair and a serious problem that needs to be fixed.

The other 5 were more concerned about social welfare, the need for somebody else to pay for them in their dementia days once they've squandered everything else on cruises I suppose (sorry my cynical opinion, I don't see many giving a toss about everyone else I'm afraid).

[Sour Mash]

27 minutes ago, Democorruptcy said:

Sorry I got that "sucked" from you! It was in your next paragraph that I didn't quote last time.

Your apology is accepted.

 

28 minutes ago, Democorruptcy said:

Sorry I got that "sucked" from you! It was in your next paragraph that I didn't quote last time.

Your apology is accepted.

Context is everything.

The context is that cheap finance is being used to dress up an expensive and for many people, very bad, financial decision - changing to a new car every 2-3 years - as a somewhat affordable proposition.  They are being 'suckered' into thinking what they are doing is somehow now affordable because they don't have to pony up the substantial cost of a new car and then face the sinking feeling when seeing the trade-in price a couple of years later.  Low interest rates enable seemingly reasonable monthly payments for what is perceived as owning a car .. but boils down to multi-year rental.

As a result of this, more and more people are being dragged into a 'keeping up with the Joneses' situation because all their contemporaries are doing it and driving new cars.  They are therefore being 'sucked' into a lifestyle of pointless consumption, all based on monthly payments.

 

Do they have freedom of choice when they do this?  Absolutely.

Are they making an informed choice? Overwhelmingly, not.

Is it a good choice?  Financially speaking, usually not.

 

[Sour Mash]

6 minutes ago, wsn03 said:

I watched an interview with Baby Boomers, they were being quizzed about what they wanted out of the budget a few weeks ago on some morning show.

Out of the 6 or 7 of them a couple said how lucky they'd been to be born as a boomer with all the financial benefits of the way things were for them (houses, pensions etc), but only 2 said things were really bad for the children and young generations, citing it as unfair and a serious problem that needs to be fixed.

The other 5 were more concerned about social welfare, the need for somebody else to pay for them in their dementia days once they've squandered everything else on cruises I suppose (sorry my cynical opinion, I don't see many giving a toss about everyone else I'm afraid).

 

Human nature, unfortunately.

Studies have shown that most people who experience good fortune from a factor outside their control invariably end up attributing the good fortune to their own abilities and hard work, not benevolent circumstances.  Comparatively few recognise that their own position owes something to good luck - typically starting from a privileged position or getting a lucky break.

(The opposite holds true to a certain extent too - hence you have the attitude (especially in the USA) that everyone who is poor or socially disadvantaged must be lazy and/or stupid to be in such a position.)

 

[Venger]

43 minutes ago, Sour Mash said:

Context is everything.

The context is that cheap finance is being used to dress up an expensive and for many people, very bad, financial decision - changing to a new car every 2-3 years - as a somewhat affordable proposition.  They are being 'suckered' into thinking what they are doing is somehow now affordable because they don't have to pony up the substantial cost of a new car and then face the sinking feeling when seeing the trade-in price a couple of years later.  Low interest rates enable seemingly reasonable monthly payments for what is perceived as owning a car .. but boils down to multi-year rental.

As a result of this, more and more people are being dragged into a 'keeping up with the Joneses' situation because all their contemporaries are doing it and driving new cars.  They are therefore being 'sucked' into a lifestyle of pointless consumption, all based on monthly payments.

Do they have freedom of choice when they do this?  Absolutely.

Are they making an informed choice? Overwhelmingly, not.

Is it a good choice?  Financially speaking, usually not.

 

For the 2nd time, Sour Mash, the Merc is not on finance.  There was a personal loan on it for a short time, until it was paid off.  All an informed choice.

I posted early on into this thread that I have a 2014 reg car, ex-demonstrator, and it's a bit of a shopping trolley and only slightly up from base-model + easy access to a very high end car.     

It was only after someone else was posting how Merc drivers are uninformed saps, overpaying, and that luxury difference between Mercs and other cars such as Kias not that great.....  that a good Kia with warranty a better choice, claiming what is and what isn't Financially Sensible, that I was goaded into revealing Merc position with a pic.    They may choose Kia, but it's their choice.  People have their own minds.

Yes Democorruptcy... I hold the same position for just about everything anyone chooses to buy, with debt or their own money.  Their choice.  Their responsibility.

Elsewhere I am being critised by a bunch of massive-egos who claim '95% of people do no research before they buy.'   (any big cost item)  

They really believe themselves to be 'the elite ones'.   They look down on other people as lessor.   Looking at their own choices as brilliant.  Other people as incapable.

 

And I can see it is strong here too.   It's a simple choice, and those who choose new car on finance don't need approval or permission of financially sensible police, sneering at their decisions, or casting them as victims.

Too many people seem to believe that.   Everyone else suckered in, dragged in.  Everyone else who 'Doesn't understand (their truth)'.   Financially-sensible police.

@Sour Mash

Haven't you got to continue to indulge your fantasies about saver bail-ins (nice as a homeowner yourself), and dreaming of what you would do as a BTL landlord.   

BTLing seems such a worthy cause you to, and obviously those who have taken the debt to become BTL landlords have taken a 'productive and worthwhile and financially sensible decision'.   

 

On 11/2/2016 at 1:15 PM, Sour Mash said:

Yes, bail-ins are on the books from here on in.

In a way, they are actually fairer than full on state bailouts.  If you have stupidly entrusted your wealth to a bank (i.e. exchanged it for bank credit) without doing your homework, then you should bear some/all of the consequences of that bank going belly up.  The idea that bank savings should be sacrosanct is just an implicit guarantee for the state to support the banks bad business practices, no matter what happens.

 

On 11/2/2016 at 1:35 PM, Venger said:

Alternatively there could be a big HPC.  No one dragged you into buying a house, and taking on mortgage.

------

Tenants refusing to pay rent
Started by rollover, March 30

On 3/30/2017 at 2:59 PM, Sour Mash said:

Lots of people living 'flash' lifestyles do so by running up and dodging repayment of, large debts.

Seriously, you've got the question the mentality of someone constantly seeking to show off how flush they are on social media.  It doesn't exactly scream 'this person is genuinely hard working and wealthy as a result' to me .....   If I was a landlord, on top of any other references and metrics, I'd definitely consider gathering as much info as possible on potential tenants via social media before letting.

 

On 3/30/2017 at 3:22 PM, 24 year mortgage 8itch said:

Suppose you're a highly leveraged ******wit masquerading as a landlord and you wish to play God, using your over inflated sense of self worth, by selecting which particular serfs are blessed enough to live in a property owned by you, a leader amongst men...

Just who is going to pay your mortgage if no one is good enough for you?

 

On 4/2/2017 at 10:40 AM, Sour Mash said:

Get that chip off your shoulder - Seeking not to end up with a bunch of crap non-paying tenants is a perfectly sensible and reasonable course of action for someone looking to let out a property.  And offering housing in return for rent is an entirely reasonable thing to do, especially since social housing is so heavily oversubscribed and under-provisioned.

Or would you just prefer it if private rental wasn't a thing?  Presumably in your la-la world there would be an unlimited amount of social housing and properties could be purchased outright for a few tens of thousands?

Yes HPC, not your landlordism do-gooding... 'BTL debt that is okay for you'.

On 4/2/2017 at 10:54 AM, 24 year mortgage 8itch said:

And you don't have a chip on YOUR shoulder about conspicuous consumption? Boot? Other foot? 

Where do tenants get to find out about their Landlord's liabilities, general financial situation and likelihood of getting things done when needed and not be sheared like a sheep whenever the landlord feels like it?

 

Edited April 26, 2017 by Venger

[Democorruptcy]

40 minutes ago, Sour Mash said:

 

Context is everything.

The context is that cheap finance is being used to dress up an expensive and for many people, very bad, financial decision - changing to a new car every 2-3 years - as a somewhat affordable proposition.  They are being 'suckered' into thinking what they are doing is somehow now affordable because they don't have to pony up the substantial cost of a new car and then face the sinking feeling when seeing the trade-in price a couple of years later.  Low interest rates enable seemingly reasonable monthly payments for what is perceived as owning a car .. but boils down to multi-year rental.

As a result of this, more and more people are being dragged into a 'keeping up with the Joneses' situation because all their contemporaries are doing it and driving new cars.  They are therefore being 'sucked' into a lifestyle of pointless consumption, all based on monthly payments.

 

Do they have freedom of choice when they do this?  Absolutely.

Are they making an informed choice? Overwhelmingly, not.

Is it a good choice?  Financially speaking, usually not.

 

I'm not getting sucke into that sucke thing again.

You have repeated your argument but I think you are missing my point. You seemed to be implying that Venger was biased about leasing. I don't think Venger was. I think if you put a thread up about anything he didn't lease or own but suggested people were being coerced into doing it, he would still jump to the defence of them having free minds.

 

[Sour Mash]

Wow - I always thought you were a bit on the 'OTT fanatic' side but you've really lost the plot with this thread, Venger.

[Sour Mash]

1 minute ago, Democorruptcy said:

I'm not getting sucke into that sucke thing again.

You have repeated your argument but I think you are missing my point. You seemed to be implying that Venger was biased about leasing. I don't think Venger was. I think if you put a thread up about anything he didn't lease or own but suggested people were being coerced into doing it, he would still jump to the defence of them having free minds.

 

Good grief - how does pointing out that the surge in PCP/PCH has lead to lots of people making bad financial choices wrt what kind of car they choose to run equate to saying that they don't have ultimate freedom of choice?

Saying that people are making bad choices or ill-informed choices does not equate to claiming that they don't a choice, why you seem to be drawing that inference I have no idea.

 

[iamnumerate]

4 minutes ago, Sour Mash said:

Good grief - how does pointing out that the surge in PCP/PCH has lead to lots of people making bad financial choices wrt what kind of car they choose to run equate to saying that they don't have ultimate freedom of choice?

Saying that people are making bad choices or ill-informed choices does not equate to claiming that they don't a choice, why you seem to be drawing that inference I have no idea.

 

It doesn't and I also have no idea.

[Funn3r]

I've never leased a car but from reading this thread it seems the downside is that leasing hides the problem of new car depreciation without removing that problem. 

I can see the logic of that, but otherwise I quite fancy the idea of leasing because it removes the ba11sache of where to buy the car and how to sell it afterwards. I don't need a new car - does the leasing thing work with used cars? Can you do that? 

[Democorruptcy]

3 minutes ago, Sour Mash said:

Good grief - how does pointing out that the surge in PCP/PCH has lead to lots of people making bad financial choices wrt what kind of car they choose to run equate to saying that they don't have ultimate freedom of choice?

Saying that people are making bad choices or ill-informed choices does not equate to claiming that they don't a choice, why you seem to be drawing that inference I have no idea.

 

I understand you are saying they have a choice but some might not be informed. I put free minds instead of just free choice.

[wsn03]

11 minutes ago, Funn3r said:

I've never leased a car but from reading this thread it seems the downside is that leasing hides the problem of new car depreciation without removing that problem. 

I can see the logic of that, but otherwise I quite fancy the idea of leasing because it removes the ba11sache of where to buy the car and how to sell it afterwards. I don't need a new car - does the leasing thing work with used cars? Can you do that? 

Yes, well sort of. My friend is leasing a car that is a couple of years old from BMW. He had to put money down. He pays an amount per month. When the term is up he will have the option to buy for a balloon payment or just walk away. Is that Lease or PCP?

[iamnumerate]

14 minutes ago, Funn3r said:

I've never leased a car but from reading this thread it seems the downside is that leasing hides the problem of new car depreciation without removing that problem. 

I can see the logic of that, but otherwise I quite fancy the idea of leasing because it removes the ba11sache of where to buy the car and how to sell it afterwards. I don't need a new car - does the leasing thing work with used cars? Can you do that? 

You can with nearly new cars but more than a certain number of years old.

[Sour Mash]

4 minutes ago, Funn3r said:

I've never leased a car but from reading this thread it seems the downside is that leasing hides the problem of new car depreciation without removing that problem. 

I can see the logic of that, but otherwise I quite fancy the idea of leasing because it removes the ba11sache of where to buy the car and how to sell it afterwards. I don't need a new car - does the leasing thing work with used cars? Can you do that? 

Yes  - that's it in a nutshell.

In the case of PCP,  Depreciation (and the potential cost of taking out a loan to buy the car outright) is wrapped up into a financial product that typically consists of the customer paying just over 50% of the purchase price (but interest calculated from 100% of the price) back over 3 years.  At the end of that period you either pony up the other 50% to own the car or give it back.  There's usually a bit of wriggle room built into the final balloon payment in order to offer the chance of 'equity' should the customer take out another PCP deal.  If you don't take out another deal from the same dealership, you don't get any cash back from said 'equity'.

From the punters point of view, they have 'bought' a car with a modest down-payment (often sourced from 'equity' on a previous PCP deal) with what looks like a reasonable repayment of a few hundred quid a month for three years.

In actual fact, most won't/can't pay the ~50% balloon payment to own the car when the three years are up and take out another deal because they can pay a few hundred quid a month (they've been doing it for three years) and will get a new set of wheels out of it.

Thus they perpetually fund 'years 1 through 3' levels of new car depreciation.  Ouch!

PCH is a version that typically lasts 2 years and buying is never on the agenda.  Again, the customer ends up paying the depreciation plus interest on top.

Also, I've seen 4 year PCP deals plus PCP being offered on secondhand (2 year old) cars too.

 

[Sour Mash]

5 minutes ago, wsn03 said:

Yes, well sort of. My friend is leasing a car that is a couple of years old from BMW. He had to put money down. He pays an amount per month. When the term is up he will have the option to buy for a balloon payment or just walk away. Is that Lease or PCP?

That's PCP.  It is now being offered on 'nearly new' cars too, 2 year old in every example I've seen.

I suspect that the 2 year old cars are coming from a PCH lease - so the dealer/finance company is getting two bites of the finance cherry on top of the new car sale in the first place.  Neither of the first two registered keepers are likely to end up owning the car.  The finance company is often owned by the car manufacturer in the case of the new car sale, and quite often has a deal with the dealership for the second sale.

Remember, in these deals the punter is paying interest on the full amount of whatever the purchase price of the car was, not just the chunk of value they are expected to pay over the term of the finance.

This business model is only possible because of ultra low interest rates.  Should they go back up to historically normal levels, the manufacturers and dealers are going to find the business of selling expensive/new cars considerably more challenging and people looking to 'own' cars through them are going to either have to pay a lot more or adjust their expectations.

[Sour Mash]

22 minutes ago, Democorruptcy said:

I understand you are saying they have a choice but some might not be informed. I put free minds instead of just free choice.

Free minds or not, it's not germane to the point of the thread which is that car finance is just another example of low interest rates being used to create a market that milks the buyer.  Total non sequitur from Venger, going off on a personal hobby horse which included bizarrely posting pictures to prove he had a Merc (though no-one really had asked, or even cared).