Friday, Mar 12, 2010
A quarter of homeowners made the biggest bet of their lives without knowing it
Telegraph: A quarter of home owners live on 'financial precipice'
The somewhat hysterical headline is based upon a survey finding that a quarter of people aged 35-44 could not withstand a £300 drop in monthly income and pay their mortgage. Also, one in eight adults in this age range has deliberately over-inflated their income to secure a larger loan - that fact that fraud was a factor in the credit boom will not be news to regular blog readers. I suspect that most of the survey responders could deal with a £300 monthly drop without much difficulty if they are flexible about their lifestyle. Without sustained property price inflation, the decision to take on large mortgage debts looks questionable considering that we are facing a fiscally austere future. You've got to get on the ladder ...
Posted by quiet guy @ 09:25 AM (2184 views) Add Comment
53 Comments
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1. paul said...
This is a vindication for me that not getting sucked into the property boom was a Very Good Idea.
2. Markyh said...
Absolute tosh. I know this as a fact as I am 41 and my wife is 37. Our family up to April 2009 were £65k, then I got made redundant but luckily had 12 months income protection insurance covering 75% of my take home pay. So it has been 15 months planning to go self employed and budgeting to live on my wife's £31k wages with the assumption it might take a while to create an income self employed.
So I have spent the last 15 months working out how to go from living on a £3900 take home pay with a fully paid company car and mobile phone to £3300 (excluding jobseekers allowance i got for 6 months) take home pay running two private cars and a personal mobile phone to £2000 from May 2010.
Trust me it can be done. I have had to cut out all the "would be nice to have's" that maybe people take for granted as necessities? Such as my personal pension payments £400 p/m, magazine subscriptions £25 p/m, personal spending cash down from £200 p/m to £50 p/m, pet insurance £20 p/m, savings of £300 p/m cancelled, food shopping slashed from £600 p/m to £400 p/m and on target to hit £300 p/m by switching from Tescos & M&S to 90% Aldi and 10% Tescos, posh extras bank account downgraded £14 p/m saved, posh £25p/m broadband switched to Sky for £10 p/m etc etc, and for as short as possible offset mortgage put on interest only from May, suspending capital repayments saving £466 p/m although this will be the first to resume. Holidays abroad suspending for a few years.
Kept broadband, home phone and Sky TV package as luxuries. So unless these people have massive credit card debt with high total minimum payments each month (which we don't) then I just don't believe this story unless these people see all luxuries in life as must haves. Trust me we are on budget to live ok on £2000 and keep two cars and the 5 bed house with about £100 spare p/m for emergencies and If I can start earning as self employed soon it will be fine.
3. smugdog said...
Low interest rates,
minuscule mortgage payments,
cut price sales,
scrappage schemes,
restaurant deals,
low tradesmen rates
and not to mention that their property values have held up relatively well.
Many households have been having an absolute ball.
4. luckyjim said...
I think it's true that many people would struggle with a relatively small drop in income but why does that makes renting a better option ?
Will your landlord renegotiate the terms of your rent ? Or give you a six month rental holiday ? Will the government pay your rent if you have significant savings ? Is it possible to fix your rent so that it won't go up for the next ten years no matter what ?
You can downsize more easily if you are renting but you can also be FORCED to downsize more easily. If you can't pay your rent you are out. We don't even have stats for rental evictions - no political party is bothered about the interests of private renters.
5. holyroller said...
I remember contacting RBS about a one account mortgage during the boom years and was advised by the person on the phone to phone back and give different details as that way they would be able to offer me a bigger mortgage. Was a bit surprized and I didn't phone back.
6. estrader said...
@3 - The public doesn't understand and what is worse is that they do not understand that they do not understand. The Government doesn't want you buying a house because it is in your best interest. It is all about keeping people on treadmills, nothing more, and nothing less.
7. mark wadsworth said...
LuckyJim: "why does that makes renting a better option"
Because it is better to be homeless and debt-free than homeless with a s*dding great mortgage shortfall hanging over you?
8. jallan said...
@ paul said... I am loving this situation now, 8 years ago I started thinking about buying flat, I was never able to do it due to various reasons and at the time I was really frustrated. It has now turned out to be a blessing in disquise I am not one of these people cripled with a massive mortgage, unable to get shot of the thing due to negative equity and using my credit card to pay my mortgage; knowing it is only a matter of time until I am evicted and made bankrupt. I am currently an estatic tenant and free as a bird.
9. timmy t said...
All these people were fine while prices were rising because they could just MEW what they didn't earn. Which just goes to prove that the whole market was built on the premise that prices could only go up.
Luckyjim - why is renting a better option... because you can sleep at night knowing that your world won't come crashing down as soon as government intervention stops... which it will right after the election.
10. cat and canary said...
"Low interest rates, minuscule mortgage payments, cut price sales, scrappage schemes, restaurant deals, low tradesmen rates and not to mention that their property values have held up relatively well. Many households have been having an absolute ball."
...i'm having a ball too,
> cut price sales,
> houses £25,000 down from the peak, with further downward pressure possibly on the horizon
> totally financially secure, even if i lose my job tomorrow. for several years
> no mortgage to pay, no worries if i lose my job
> low rent
> saving up to pay for my house, cash, when i want, how i want, no banks, no interest payments
> no MEW to pay off, no loans
> no worries about negative equity
> my pension isn't link to the inflated price of my house!
11. Estrader said...
"low tradesmen rates"
This wouldn’t be from poor lowly tradesmen that live and work in the UK would it? Ones who have taken a pay cut but now, thanks to inflation, have to pay more for the fuel they use to drive from one low paid job to another so that they can afford to keep their kids in school and put higher priced food on the table?
"restaurant deals"
From struggling restaurateurs who have to pay out wages and increasing energy costs to stay in business?
12. smugdog said...
As Debtfree said
"You have to ask, if you had lots of cash, wouldn't you rather buy property than hold the cash" ?
Hmmmm!
13. estrader said...
"low tradesmen rates"
You mean from poor lowly tradesman that actually have to go out and work for a living in the U.K? Ones who now have to pay more for the petrol they use to drive from one low paid job to another? These people are having a ball are they?
"restaurant deals"
You mean from struggling restaurateurs who have to pay wages and increasing energy costs to stay in business? They are having a ball are they?
14. dill said...
@10
"You have to ask, if you had lots of cash...."
I do.
".....wouldn't you rather buy property than hold the cash?"
No.
15. cat and canary said...
"You have to ask, if you had lots of cash, wouldn't you rather buy property than hold the cash" ?
Hmmmm!
sorry but the numbers work for us. A £250K mortgage at 3% over 25 years is £105,658 in interest payments. Me & my partner would rather save up for 6 years, stuff the money in bonds, and pay rent. The £25,000 drop in average house price already covers years of rent. No brainer
16. paul said...
@smugdog
You sitting comfortably? Not living on a precipice? You're lucky. Oh but your property value sagging by 1.5% in just four weeks last months so maybe you're not so lucky after all.
17. andrew said...
agreed estrader,
weak pound = higher uk fuel and petrol prices , things will only get tighter in the coming months.
Labour had to feed their biggest cash cow, the banks to ensure continued funding for more social wealth redistribution, oops sorry that just slipped out, what i meant to say is you can't blame Labour and definitely not Gordon Brown, and it doesn't matter who you vote for.
18. rumble said...
"Many households have been having an absolute ball." -- a Faustian ball.
"Your soul better belong to Jesus, mm-hmm, 'cos your a$$ belongs to me!"
19. estrader said...
@13 Very good cat and canary, at least you are thinking! That is £352/month dead money, every month for 25 years.
20. smugdog said...
Many here are quite happy to exploit the harsh and pitiful ways of living for those that
extract minerals from the ground, whilst their masters dance merrily on their Gold,
Copper and Unobtainium gains.
Quite happy to run countries and companies to near destruction in order to hedge their funds.
Poor restaurateurs and the like, wages, heating etc, did I make them take the gamble too?
But householders, who took out loans for their only shelter, they are the scum, lowest of the low,
the reason for all our downfalls.
Behave and have a word with yourself.
Greed is all around you.
21. luckyjim said...
The point being debated is whether renters are better placed than home owners to cope with a small drop in income. On that specific point I don’t think there is any doubt that home owners get much more protection and (to answers to MWs point) are less likely to find themselves forced out of their home.
I suppose it is better to be a comfortable renter than an overstretched owner. But 'comfortable' is always better than 'overstretched' regardless.
That aside, there are circumstances where it is better to rent, of course. I Sold-To-Rent when the circumstances were right for me.
22. estrader said...
@18 - "But householders, who took out loans for their only shelter, they are the scum, lowest of the low, the reason for all our downfalls."
You would make a great politician. I don't expect to be bailed out for my investment choices, bad or good, never have expected it and never will. There is no real difference in the quality of life between someone who pays £800/month rent for shelter and someone who pays £800/month mortgage.
23. rumble said...
"But householders, who took out loans for their only shelter, they are the scum, lowest of the low,
the reason for all our downfalls." -- no, I only think they're as childlike as suits the government.
24. estrader said...
@21 Governments only want people on treadmills, that is all. They blames 'speculators' when things go wrong but like to accept credit when things go right. They have managed to brainwash some with this view it seems.
25. andrew said...
There is a difference in quality between someone who pays £800/month rent as opposed to mortgage.
A greater proportion of homeowners bought when prices were lower and could have a 3 bed house for £800 whereas others have to pay £800 rent for a shoe box.
That is why we all want prices to fall to a reasonable level, don't talk yourself out of the main aim, renting is crap, and to be avoided if you can, if we could all buy at a normal price and the market was normally fluid with low transaction costs then nobody would rent.
26. estrader said...
@23, You are missing the point, completely. I am not talking about what has happened as a result of property speculation.
27. mark wadsworth said...
Lucky Jim: "I don’t think there is any doubt that home owners get much more protection and (to answers to MWs point) are less likely to find themselves forced out of their home"
Yes, that is true, under present Home-Owner-Ist policies, it's the renters who are scum (to borrow Smugdog's expression). But all the same, I'd rather be homeless and debt-free.
28. rumble said...
@Estrader, exactly. In order for their management to be as successful as possible, the source of income variable needs to be kept within the determined bounds and perform as required so that the formula produces the required result.
Revelations: You are already a number.
29. Crunchy said...
"A quarter of homeowners made the biggest bet of their lives without knowing it."
Underpinning the pyramid, whilst the taxpayer sets in the RSJs.
30. britishblue said...
Interesting that repossessions are at the highest level for 14 years.
A quick look at the Nationwide House Price Index will show you that 1996 was the real low point of the last housing crash. Are there any 'indicators' apart from the temporary ones that have spiked the market upwards that suggest and upward movement in the market rather than an imminent crash?
31. tenyearstogetmymoneyback said...
People have been asking "If you had lots of cash, wouldn't you rather buy property than hold the cash" ?
That was my plan for next year when my endowments paying out should give me a £200K deposit.........
Then they announced 20% redundancies where I work "Restructuring our Capabilities" despite the parent company
posting record profits.
Suddenly being mobile in the jobs market seems more attractive.
32. dill said...
Worth pointing out that if a £300 drop in income would cause arrears on mortgage payments - then so would a rise in interest rates on servicing that mortgage. A rise of 2.4% on a 150k mortgage would have the same effect. Of course, the greater the mortgage - the lower the increase in servicing cost which would lead to arrears. A combination of both in part, lessens the margin of defence further. Precarious.
33. tenyearstogetmymoneyback said...
Britishblue.
Just read your post after psoting mine.
Although 1996 was the low during the previous crash what actually happened was a slow decline starting around 1989
(as my username implies). The thing that was different that time was the level of reposessions. I reckon on the estate
where I lived it might have been 1 in 50 houses (it was quite obvious as the lender would post notices in the windows
specifying when all "Chattels" had to be removed by).
By 1996 the only reason anyone was buying was that it was cheaper than renting. Anyone who wanted an investment
was far more likely to be into Technology shares.
34. vacuouspolitician said...
"Low interest rates, minuscule mortgage payments, cut price sales, scrappage schemes, restaurant deals, low tradesmen rates and not to mention that their property values have held up relatively well. Many households have been having an absolute ball."
Yes you have a good point. But not so sure about the "cut price sales" aspect or "many household having a ball". I don't see much movement in prices where I live (max peak to trough was approx 7%) and nothing ever comes up at auction in this area. I'm not convinced that many households are having a ball because they are probably bracing themselves for reality - this situation (government intervention) is not real - it's a sham and it will bite people eventually.
"Many here are quite happy to exploit...Quite happy to run countries and companies to near destruction in order to hedge their funds.
But householders, who took out loans for their only shelter, they are the scum, lowest of the low, the reason for all our downfalls.
Behave and have a word with yourself. Greed is all around you."
An uncomfortable message on this site. But then I have to agree with you. It seems utter madness that people are paying out huge rents when they can go out and pay for a place in cash (...how many times have I heard this comment on this site). Sure if the numbers work out for them and they are happy - no problem with renting. But I get the feeling that some people on here are just not happy...and can't be happy for others...
Having spent time reading the articles (the best part about this site) and skim reading some of the comments you get a feeling that there are some genuine people on this site (to whom I empathise) and likewise some rotten-to-the-core folk on here too. There seems to be a clique/elite who think that this site belongs exclusively to them. And yes it does seem hypocritical for these rotters to blame others for buying a home and then behave like a City spiv themselves. They don't seem to have much humility and understanding of ordinary
people - probably because they think they are better than most people. A shame really.
35. quiet guy said...
@smugdog
"householders, who took out loans for their only shelter"
The problem is that many didn't take the loan for shelter - they borrowed heavily (and maybe told some fibby wibbys on their mortgage application) to avoid missing out on the boom.
36. cat and canary said...
Many here are quite happy to exploit...Quite happy to run countries and companies to near destruction in order to hedge their funds.
...does George Soros use this site?!?! c'mon own up, who are you, remove your mask?!
37. cat and canary said...
@23 strong words, quietly spoken.
Consider the Wilsons, they took 700 shelters for their own profit, just because they could do a bit of arithmetic
(True, there are those who took out risky loans for their only shelter. But lets face it, the above posts are focusing their criticism against the vast majority of middle class, wannabe ladder climbers, who did it for greed).
38. Lord D'arcy Pew said...
"One in eight adults in this age range has deliberately over-inflated their income to secure a larger loan."
This is Fraud, pure and simple.
The losses to the banks balance sheets are currently filled with tax payers money via Q.E. The tax payer is now an active player in a vast money laundering operation.
The treasury are exchanging criminally obtained money for future tax increases, God help us all!
39. luckyjim said...
Well said Vacuouspolitician
I really feel for FTBers who have little prospect of owning a decent family home. My kids may be in the same boat too one day. But most of the bitterness and rhetoric on here comes from STRs who are frustrated that the ‘crash’ wasn’t as big as they would have liked. They had an opportunity to buy at 25% or more below peak last year – and take advantage of record low interest rates – but they wanted more. Greed greed greed.
Now they blame everyone but themselves - Gordon Brown, ‘The Sheeple’, ‘Homeownerism’. And they do it in the guise of a moral crusade against over-priced houses.
Contemptible hypocrites. Take a look at yourselves
40. dill said...
vacuouspolitician @ 31
Beware the hooks on which you bite.
luckyjim @ 35
Had it ever dawned on you that the "Contemptible hypocrites" are, by their very abstention, helping to bring the market down to affordable levels where young FTB's can leverage 'ownership rights' at a manageable level. Whatever individual agendas may be, they're doing your agenda a service by staying out. There's no need for divisiveness when the objective is the same. Not long to go now for the reckoning.
41. estrader said...
@36 Well said. I am certainly not trying to profit from property speculation, so to speak. I bought when it seemed stupid to rent, and now, I am renting because it seems stupid to buy. It is only the public who thinks that prices are cheap because they have fallen 25%. Besides, if you can't afford to buy then the 'Buy Vs Rent' argument is completely academic to you.
42. smugdog said...
VP, I believe me and thee may have sprung from the same litter.
You tell em bro!!
43. mark wadsworth said...
LuckyJim, I am a sell to renter, I am quietly confident that prices will come down a lot more over the next few years and am not bitter in the slightest. That's good for me, and if it's good for other people, and good for the economy as a whole, then so much the better.
I fail to see how that makes me a contemptible hypocrite or anything?
And FYI, I started my "moral crusade" against high house prices long before I sold to rent. I have studiously refused to ever sign a petition against planning permission for anything; I never complained about council tax; have been in favour of LVT ever since I went to the trouble of looking into it and so on and so forth.
IMHO it's the Home-Owner-Ists who are [contemptible] hypocrites. They say they want a wider spread of homeownership but they are all NIMBYs. They say they want people to take responsibility and save but what they mean is "borrow to the hilt". They are dead keen on being subsidised at savers' expense. They rail against "greedy bankers" even though without those greedy bankers there wouldn't have been a house price bubble. They wail about "preserving the Hallowed Greenbelt for Future Generations" when those future generations are crying out for reasonably priced houses to live in. They wail about Council Tax even though a lot of them bought their houses under Domestic Rates or even Dom Rates + Schedule A, i.e. at a time when property taxes were HIGHER and thus properties CHEAPER.
So sorry, you are way off piste here.
44. luckyjim said...
MW - "I am not bitter in the slightest"
See @39 paragraph 4.
45. mark wadsworth said...
Pointing out that other people are rampant hypocrites doth not make me bitter, I have never denied that I profited personally from the house price bubble. So there.
46. p. doff said...
Vacuous
You forgot to add your usual 'JAR SPOON SPOON JAR' at the end of your comment.
Just thought I'd stick an inane remark in to interrupt and defuse a potential argument about bitterness and hypocrites.
47. rumble said...
p. doff!! Don't start him on that crap!
48. This comment has been removed as it was found to be in breach of our Blog Policies.
49. mr g said...
LJ@35 "Now they blame everyone but themselves - Gordon Brown, ‘The Sheeple’, ‘Homeownerism’. And they do it in the guise of a moral crusade against over-priced houses."
Agree entirely with your comments but you omitted the really guilty group: My generation, the baby boomers.
We've all been tarred with the same brush and cast as the Devil Incarnate, the Anti Christ you name it, by some of the more embittered and excitable contributors to this site.
Crass ageism and hypocrisy.
50. Luckyjim said...
Mr g
Ah yes, the Baby Boomer Conspirators or BBC for short..
51. tenyearstogetmymoneyback said...
Not all of us Sold to Rent. After spending ten years stuck in a house I hated (but eventually had 85% equity in)
I was delighted to be able to sell it for £5K more than I paid for it and move in with my Girlfriend. On of the reasons
that didn't work out was that despite saving £10K a year I was never able to afford half her place, which went up from
about £130K to £330K in the time I was there.
The thing that we never got to hear about at the time was that all the liar loans etc were funded by foreign money.
Now that they want it back none of the solutions look very good.
52. smugdog said...
You choose your word wisely Timmy T @ 48
Do you drink Stella of an evening as well as throughout the day?
53. rumble said...
Kumbaya my Lord, kumbaya....