Bank Of Mum & Dad

[Badger]

Self-employed colleagues' girlfriend (who is also self employed) has been 'given' £70k by BOMD.

Colleague is now buying a 3 bed house in london outskirts for almost 300k stating that the 'loopholes' for getting a mortgage whilst being self-employed are closing & it'll be more difficult in the future.

When pressed it turns out he means he's getting a 'dodgy' mortgage.

I mentioned theres a reason for amounts able to be borrowed - to ensure repayments can be made (thus avoiding repossession etc) which didn't seem to register.

Anyhoo, the sellers are now getting twitchy & may pull out, losing the buyers a couple of k in fees.

Why is it when people get handed a ton of money they immediately want to get into many times more debt than the credit they've just received?

[Pent Up]

maybe because they haven't worked hard and saved for a deposit they're not as bothered about losing it all and more!

Anyone fiddling the numbers to get a dodgy mortgage is mental. With mine and my partners wages we can borrow up nearly 150k. We have calcualted what all our outgoing would be and we can't afford to pay the mortgage each month! Even with rates so low! Firstly why are banks still lending so much? We have a large deposit which probably helps. And second have the not worked out what they're outgoing would be? And at future higher rates? Madness!

I'm not prepared to borrow more than 110k and even that is a massive amount! But at least we know we can build up savings and pay the mortgage and that we will be ok after our fixed deal has ended with much higher rates.

In my opinion people like this deserve to be repossed.

[Si1]

in my family, BoMaD only ever pays out when one member or other of the family is buying a house at peak of market

this happened in the last boom (1990) and in the current one

I was turned down for said BoMaD asssistance in 2001

They think I'm crazy not to take up current offer as house prices are going up again...

I think BoMaD has psychological undertones of control and superiority, they want you to be helpless and at their whim

Edited March 3, 2010 by Si1

[cool_hand]

Why is it when people get handed a ton of money they immediately want to get into many times more debt than the credit they've just received?

the problem is you have to pay that sort of money (300K) to get something you would want to live in. I don't know the exact area they are buying in but 300K even on the outskirts of London is not going very far.

[Dorkins]

The average person in Britain seems not to be smart enough to work out that while a 4x joint mortgage is (just) affordable at 5% interest when you are both working, it won't be affordable at 8 or 10% or if one of you becomes unemployed. The longer the government and the BoE allow house prices to stay this high, the more people will be squeezing themselves into this situation by hook or by crook, and the louder the inevitable bang will be when it comes. It might feel like nothing much is happening at the moment, but actually what is happening is the equivalent of quietly adding more oily rags to the pile day by day, until one day...

[Confounded]

The average person in Britain seems not to be smart enough to work out that while a 4x joint mortgage is (just) affordable at 5% interest when you are both working, it won't be affordable at 8 or 10% or if one of you becomes unemployed. The longer the government and the BoE allow house prices to stay this high, the more people will be squeezing themselves into this situation by hook or by crook, and the louder the inevitable bang will be when it comes. It might feel like nothing much is happening at the moment, but actually what is happening is the equivalent of quietly adding more oily rags to the pile day by day, until one day...

Exactly, the government intervention since 04 has created a mega boom where a huge number of people have participated at boom prices. Unlike other booms where because of the quick boom bust nature of the natural market far fewer get the opportunity to make the mistake.

This is posted on the charts thread.

What have had in the housing bubble is a mega bubble where the number of people who have bought at bubble prices has been huge. The Government/banking intervention that has extended and extended the bubble has resulted in far more people buying at bubble prices than normal. See graph below, I did not plot the original but it is the best visual display of the housing bubble I have found. I have crudely added the bubble zones (generously calling anything below 4X income as cheap but anything above 4 x as in a bubble.)

As taught very early on in school maths the area under the graph is very important!

Income to house price ratio

[Topher Bear]

in my family, BoMaD only ever pays out when one member or other of the family is buying a house at peak of market

this happened in the last boom (1990) and in the current one

I was turned down for said BoMaD asssistance in 2001

They think I'm crazy not to take up current offer as house prices are going up again...

I think BoMaD has psychological undertones of control and superiority, they want you to be helpless and at their whim

Thats my feeling too.

We looked around to buy late summer as I thought I was about to go perm at work where I am a contractor and wanted to get the higher lending available on higher salary and stamp duty holiday, (it might have been right for us to buy, we are at the end of our tether for renting!)

My parents had recently inherited 60k ish from my grandmother. I know they only have 30k outstanding mortgage with endowment policy for all but 5k and two years to go. My dad offered help with deposit: 5k! In the meantime they complain of value of pension, go on 5k cruises, buy caravans and live in 350k 4 bed detached! No bomd to speak of here.

And no doubt for the use of that 5k they would want to right of veto on what we buy.

[SMAC67]

The more people who join the collapsing pyramid scheme, the bigger the bust, it really is going to wipe out everyone when it goes.

[Brave New World]

Thats my feeling too.

We looked around to buy late summer as I thought I was about to go perm at work where I am a contractor and wanted to get the higher lending available on higher salary and stamp duty holiday, (it might have been right for us to buy, we are at the end of our tether for renting!)

My parents had recently inherited 60k ish from my grandmother. I know they only have 30k outstanding mortgage with endowment policy for all but 5k and two years to go. My dad offered help with deposit: 5k! In the meantime they complain of value of pension, go on 5k cruises, buy caravans and live in 350k 4 bed detached! No bomd to speak of here.

And no doubt for the use of that 5k they would want to right of veto on what we buy.

5k, 5k – you lucky, lucky b&stard (In a Life of Brian style) jeez I would welcome that with open arms!

Seriously I would have taken it anyway and squirreled it before they went on anymore cruises!

I love the equality of modern Labour – born a few years too late and your parents aren’t in a position to fund you – well f*ck off we have plenty of ‘hard working families’ reckless enough to shove their feet in your face on the ladder.

[Bloo Loo]

the problem is you have to pay that sort of money (300K) to get something you would want to live in. I don't know the exact area they are buying in but 300K even on the outskirts of London is not going very far.

wrong attitude.

paying that money and putting yourself at risk is the REASON, the ONLY REASON, the asking prices are so high.

FEAR keeps people doing it...If people were confident and not fearful of missing out, they would just say no. Prices would fall.

[OnlyMe]

wrong attitude.

paying that money and putting yourself at risk is the REASON, the ONLY REASON, the asking prices are so high.

FEAR keeps people doing it...If people were confident and not fearful of missing out, they would just say no. Prices would fall.

It is gun at the head interest rate policy, it is intentional and has been since 2001. Counfounded's chart is the most meaningful of all the HPI charts it shows the scandalous depths to which this policy has been enacted. It is continuing, the outcome will be worse aas a result as more lambs are sucked into the greatest con trick ever played by the financial system.

Edited March 3, 2010 by OnlyMe

[Dorkins]

Exactly, the government intervention since 04 has created a mega boom where a huge number of people have participated at boom prices. Unlike other booms where because of the quick boom bust nature of the natural market far fewer get the opportunity to make the mistake.

This is posted on the charts thread.

Yeah, the area under the graph is going to be a killer. Transaction levels were very high even at the peak of the peak 2005-7 so there are many many people exposed to a significant fall from peak prices. It's not just near retirees who have virtually paid off their house and been smugly watching the indexes over their cornflakes. How many people in their 40s would find themselves with barely a penny of equity to their names if prices fell 40-50%? How many in their 30s would be in negative equity worth years of net income? By the way I don't think any of this is a good thing, it would have been much better not to have the bubble in the first place, but too late for that now!

I don't think it's a coincidence that the lowest market bottom on your chart came after the biggest previous boom. The destruction of equity that is almost certainly coming will hugely reduce the number of pounds chasing the available housing stock. We could see house prices at 3x or even 2.5x single incomes.

[Si1]

5k, 5k – you lucky, lucky b&stard (In a Life of Brian style) jeez I would welcome that with open arms!

Seriously I would have taken it anyway and squirreled it before they went on anymore cruises!

the precondition of BoMaD (in my family anyway) is that you have to use it to get on the property ladder with a hideous mortgage. counter cycilcal investing, or just plain sensible saving, is not part of this scenario and money will not be released for these purposes.

the sub-concious motivation from said parents is to see you suffer with mortgage payments and high house costs in a way they never had to, it makes them feel superior

if you were to invest it sensibly then this would just confuse the poor dears

I have also noticed this attitude (not that I was asking for money off them) from boomer relatives and aquaintencas who are amazed I don't aspire to buy a house as big as the one they own. They think that 200k is affordable as it was affordable when it was 40k and they bought one so what has changed etc.

[Orbital]

What's that £1300 a month in repayments?

Guess it depends what they earn? I used to pay about £1000 a month when I was earning £2000. Yikes 50% of my wages (and nothing dodgy about my mortgage I will quickly add!). But that's still a lot more to live on than some people who are paying rent out of an income of £1300 a month.

That's the prob with looking at multiples and %s. You need to look at the actual numbers to make some sense of it all. I have a friend who is earning almost 5k now (git!) and has a £2500 mortgage. OMG thats 50% of his income!!! How does he live off £2500 a month?? The poor guy

Of course if their income is like £1500 a month then it would be hard to understand how they think they will live! But no one could be that stoopid. Surely !

Edited March 3, 2010 by Orbital

[Si1]

What's that £1300 a month in repayments?

Guess it depends what they earn? I used to pay about £1000 a month when I was earning £2000. Yikes 50% of my wages. But that's still a lot more than some people who are paying rent out of say £1300 a month.

That's the prob with looking at multiples and %s. You need to look at the actual numbers to make some sense of it all. I have a friend who is earning almost 5k now (git!) and has a £2500 mortgage. OMG thats 50% of his income!!! How does he live off £2500 a month?? The poor guy

Of course if their income is like £1500 a month then it would be hard to understand how they think they will live! But no one could be that stoopid. Surely !

logic really is a foreign land to you isn't it

[wren]

in my family, BoMaD only ever pays out when one member or other of the family is buying a house at peak of market

this happened in the last boom (1990) and in the current one

I was turned down for said BoMaD asssistance in 2001

They think I'm crazy not to take up current offer as house prices are going up again...

I think BoMaD has psychological undertones of control and superiority, they want you to be helpless and at their whim

Maybe they are just thick when it comes to housing bubbles, like the rest of the herd.

[tomwatkins]

Just think of how the quality of life would instantly improve for most folks if they had an affordable mortgage that didn't swallow up a stupid % of their income. The stress of continual money problems must shorten the lives of most people, and for what? To pay a 30-40 year debt burden on a two horse race. It either made economic sense or it didn't. For most buying now it simply won't.

[Si1]

Maybe they are just thick when it comes to housing bubbles, like the rest of the herd.

indeed, I think that is basically it

[Pent Up]

I think most people of the generation above me. (I'm 27) are thick when it comes to the house Market. When people hear I'm looking at houses and keeping my eye in the Market I'm often told "great time to buy at the moment" to which I reply: well actually it's the second worst time to buy in the history of the world! Only after this time last year! I'm sick of it.

Edited March 3, 2010 by Mike2000

[Bloo Loo]

I think most people of the generation above me. (I'm 27) are thick when it comes to the house Market. When people hear I'm looking at houses and keeping my eye in the Market I'm often told "great time to buy at the moment" to which I reply: well actually it's the second worst time to buy in the history of the world! Only after this last year! I'm sick of it.

whens the best time to buy a house?

Last year!

[neon tetra]

The more people who join the collapsing pyramid scheme, the bigger the bust, it really is going to wipe out everyone when it goes.

I hope hope hope beyond all hope that this pyramid does come.

But the more people buy into it, the more I fear that it won't be allowed to fail. The consequent effects on inflation leaves me sick to the teeth at the prospect...

[huw]

I think most people of the generation above me. (I'm 27) are thick when it comes to the house Market. When people hear I'm looking at houses and keeping my eye in the Market I'm often told "great time to buy at the moment" to which I reply: well actually it's the second worst time to buy in the history of the world! Only after this last year! I'm sick of it.

Amended to capture a wider truth

[Pent Up]

Amended to capture a wider truth

I agree actually. All my friends know it's way out of their reach so don't care enough to look into it.

[Si1]

Amended to capture a wider truth

it's an interesting point about what constitutes intelligence

2 of the brightest people I have ever known (and I have more parallel examples):

(1) a technological physicist, works in telemetry systems for motor industry including F1. Outside the box thinker. Doesn't worry about property cycles but made sure he bought not above fair value.

(2) an actuary, fully qualified by mid-20s, very bright in order to do this. First thing did was buy a poxy house at peak. I actually know a few university lecturers who also did this. There's a conservative streak that needs to follow the herd, especially connected to workign in hierachical organisations.

[Pent Up]

I bet they weren't lecturers in economics!