Jump to content
House Price Crash Forum
Sign in to follow this  
exiges

Being Paid To Borrow

Recommended Posts

Occurs to me that with inflation at 4% (if taking the lower figure) and mortgage rates at say 3%, even if you were to make no repayments in real terms your debt is actually shrinking..

It's like being paid to borrow.

Share this post


Link to post
Share on other sites

Occurs to me that with inflation at 4% (if taking the lower figure) and mortgage rates at say 3%, even if you were to make no repayments in real terms your debt is actually shrinking..

It's like being paid to borrow.

Good luck with getting a 3% mortgage, and 4% pay rises.

Share this post


Link to post
Share on other sites

Good luck with getting a 3% mortgage, and 4% pay rises.

I've just checked with First Direct and they're offering one for 3.6% and I'm sure with some work cheaper could be found, not to mention the fact that my comment also applies to existing mortgage holders..

I have a mortgage at BoE + 1% meaning that I'm paying just 1.5% on the money I owe, but in real terms that's going down every day.

And as I mentioned you don't even need to get a payrise, or pay anything off to enjoy a real term gain.

Share this post


Link to post
Share on other sites

I've just checked with First Direct and they're offering one for 3.6% and I'm sure with some work cheaper could be found, not to mention the fact that my comment also applies to existing mortgage holders..

I have a mortgage at BoE + 1% meaning that I'm paying just 1.5% on the money I owe, but in real terms that's going down every day.

And as I mentioned you don't even need to get a payrise, or pay anything off to enjoy a real term gain.

What are you using to buy all the rest of your day to day goods ? Surely this comes out of the same pot as the one that pays your mortgage ? Ad if so then you are not seeing a 'real term' decline at all.

All relative.

Share this post


Link to post
Share on other sites

I've just checked with First Direct and they're offering one for 3.6% and I'm sure with some work cheaper could be found, not to mention the fact that my comment also applies to existing mortgage holders..

I have a mortgage at BoE + 1% meaning that I'm paying just 1.5% on the money I owe, but in real terms that's going down every day.

And as I mentioned you don't even need to get a payrise, or pay anything off to enjoy a real term gain.

Do you want a medal or something?

Share this post


Link to post
Share on other sites

What are you using to buy all the rest of your day to day goods ?

You're not seeing the theoretical point, once interest rates are below the inflation level, your being paid to borrow money. It's an inescapable fact.

I'm not saying what a wonderful thing it is, I'm saying what a diabolical thing it is.

Share this post


Link to post
Share on other sites

In that case please explain, all other things being equal, how you are being paid to borrow?

Say you get a £100,000 mortgage at 3%

Say inflation is running at 4%

After a year of making no interest/capital repayments you owe : £103,000

But due to inflation of 4% in real terms you only owe: £98,800

You have made no payments, but in real terms you've gained £1,200 (or £1152 in new money)

Edited by exiges

Share this post


Link to post
Share on other sites

Say you get a £100,000 mortgage at 3%

Say inflation is running at 4%

After a year of making no interest/capital repayments you owe : £103,000

But due to inflation of 4% in real terms that's only £98,800

You have made no payments, but in real terms you've gained £1,200

And in the meantime, your wages have stayed still and the cost of everything has gone up and despite being "paid to borrow" you're actually poorer.

Share this post


Link to post
Share on other sites

You're not seeing the theoretical point, once interest rates are below the inflation level, your being paid to borrow money. It's an inescapable fact.

You're being paid for already borrowed money, try getting a mortgage at below inflation for the term that will not rise as risk rises (alongside falling house prices) when those on the borderline lose thier jobs. And if you don't have it for term how will you be feeling when you come off of a fix when rates are far higher and the asset against which the debt is secured is worth less than the outstanding debt (paid or robbed). Throw into the mix the cost of surviving index in relation to other essentials.

Edit for

And in the meantime, your wages have stayed still and the cost of everything has gone up and despite being "paid to borrow" you're actually poorer.

As far as the staements go in the OP's post he will be £1200 better off than joe bloggs who didn't borrow but still faces higher rates in the future against an asset that is worth less than the outstanding debt and so will be worse off.

Edited by zebbedee

Share this post


Link to post
Share on other sites

Yes that's the point of Merv's policy.

Savers are subsidising borrowers in order to support asset prices and offset Osborne's fiscal tightening.

As long as inflation rises and rates remain the same your debt falls in real terms. So y'days CPI rise gave a boost to this mechanism of support for asset prices.

Share this post


Link to post
Share on other sites

I should just say I'm aware of the negative real interest phenomenon having been here for a while ;) I am surprised why you consider it to be a free lunch that couldn't possibly fail.

As far as the staements go in the OP's post he will be £1200 better off than joe bloggs who didn't borrow but still faces higher rates in the future against an asset that is worth less than the outstanding debt and so will be worse off.

So he's richer on paper

Yes that's the point of Merv's policy.

And the endgame?

Edited by daiking

Share this post


Link to post
Share on other sites

Say you get a £100,000 mortgage at 3%

Say inflation is running at 4%

After a year of making no interest/capital repayments you owe : £103,000

But due to inflation of 4% in real terms you only owe: £98,800

You have made no payments, but in real terms you've gained £1,200 (or £1152 in new money)

Being paid to borrow would be when you can borrow money from bank A at 3% and deposit it with bank B and get 4%. Now there's a challange for you. Perhaps something could be done with credit cards to that effect.

Share this post


Link to post
Share on other sites

So he's richer on paper

Not neccessarily-he'll suffer the ravages of inflation just like joe but, he may borrow money, buy a house, watch the house value fall by 5% and 'inherit' £1200 from the debt but be £3800 worse off than joe. The inflation policy being doled out by the Fraud of England is bad for everyone except HMG.

Share this post


Link to post
Share on other sites

And in the meantime, your wages have stayed still and the cost of everything has gone up and despite being "paid to borrow" you're actually poorer.

What you're talking about is something different altogether, namely wage inflation not keeping up with other inflation, that has no bearing in the argument that if the cost of borrowing to buy something is less than the rate at which the currency it was bought in is deflating then you're not just getting it for free, but being paid for it.

Share this post


Link to post
Share on other sites

Occurs to me that with inflation at 4% (if taking the lower figure) and mortgage rates at say 3%, even if you were to make no repayments in real terms your debt is actually shrinking..

It's like being paid to borrow.

luck of the draw imo, anyone with a mortgage is doing well right now but that wont last forever and it certainly isnt worth jumping on the band wagon now to catch the tail end of it.

Share this post


Link to post
Share on other sites

Its an interesting point by the OP, someting I was thinking about in the last few days.

If inflation is at 5% and house prices are static then you can't be being paid as your asset (lets say its £150k is worth £142,500) is going down in value.

I cant really see that you are are £££ better off or is it just me???

Edited by FIGGY

Share this post


Link to post
Share on other sites

Being paid to borrow would be when you can borrow money from bank A at 3% and deposit it with bank B and get 4%. Now there's a challange for you. Perhaps something could be done with credit cards to that effect.

Exactly.

You are only being "paid to borrow" if you can earn a return on a leveraged asset guaranteed to be higher than your cost of funds over the holding period of the asset.

Most leveraged home debtors felt that this was a guaranteed, risk free strategy for life. Some were right, I expect some to be proven to be wrong in a very painful way in the next few years.

Share this post


Link to post
Share on other sites

What you're advocating is a bit like getting 0% interest on a car purchase, but failing to take into account the depreciation.

Or the fact that the car price was over inflated in the first place to take account of the lack of interest payments that the financier will be getting.

Share this post


Link to post
Share on other sites

If inflation is at 5% and house prices are static then you can't be being paid as your asset (lets say its £150k is worth £142,500) is going down in value.

It's not your asset, it's your debt (usually)

Share this post


Link to post
Share on other sites

What you're talking about is something different altogether, namely wage inflation not keeping up with other inflation, that has no bearing in the argument that if the cost of borrowing to buy something is less than the rate at which the currency it was bought in is deflating then you're not just getting it for free, but being paid for it.

Your premice is flawed in that it implicitly requires HP's to fall by no more than 1.2% otherwise you are paying to borrow money.

Edit:

The only time that it would be good is a significant cash buyer wishing not to see thier capital eroded by inflation and so sticking it in a house

Edited by zebbedee

Share this post


Link to post
Share on other sites

What you're advocating is a bit like getting 0% interest on a car purchase, but failing to take into account the depreciation.

Or the fact that the car price was over inflated in the first place to take account of the lack of interest payments that the financier will be getting.

yep, if you could borrow a few hundred thousand at 3% and stick it in an account getting over 4% then that would be just great, but borrowing at 3% for an asset that is losing value with an increase of the interest rates looming isnt a great plan.

People already with a mortgage have done well so far but they were luck imo.

Share this post


Link to post
Share on other sites

What you're talking about is something different altogether, namely wage inflation not keeping up with other inflation, that has no bearing in the argument that if the cost of borrowing to buy something is less than the rate at which the currency it was bought in is deflating then you're not just getting it for free, but being paid for it.

Let me try to under stand the steps.

You borrow GBP 10k at 3% for a year while inflation runs at 4%. At the end of the year you owe GBP 10,300 nominal which is GBP 9,862 real

You take the GBP 10k that you have borrowed and stuff it under your mattress. At the end of the year, it is worth GBP nominal and GBP 9,600 real.

In nominal terms, you have lost GBP 300. In real terms, you have lost GBP 262. In either case, you have lost money unless I have done something wrong.

Edited by LuckyOne

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.