Have People Just Become Totally De-Sensitised To Spending Money?

[worried1]

I overheard a conversation on the train this morning where a young girl was talking to her friend about her plans to buy a flat. Huge sums of borrowing being talked about on a relatively tiny income.

It is certainly not the first time I have heard this type of conversation, often from people that I know to be very intelligent, and it got me thinking - has this boom just made everyone lose touch with the value of money? It seems very easy to talk about these massive sums.

For example, this morning's conversation involved a £400k mortgage. Even at 3% interest that is £1k per month in interest, plus another £1,300 per month in capital if you want to pay it off over 25 years. I realise that part of it relates to the fact that most people don't even think about paying the capital off any more, but even that interest bill is quite large if you lose a job and even larger if base rates ever did go up to a more usual level.

In this case, it sounded as though there would also be quite significant repayments on a loan taken out to top up the deposit.

Do people just base these decisions on the affordabilty right now without even looking at future risks?

[RichB]

It's all about affordability, has been for years. Even in the official dialog.

[LiveinHope]

I overheard a conversation on the train this morning where a young girl was talking to her friend about her plans to buy a flat. Huge sums of borrowing being talked about on a relatively tiny income.

It is certainly not the first time I have heard this type of conversation, often from people that I know to be very intelligent, and it got me thinking - has this boom just made everyone lose touch with the value of money? It seems very easy to talk about these massive sums.

For example, this morning's conversation involved a £400k mortgage. Even at 3% interest that is £1k per month in interest, plus another £1,300 per month in capital if you want to pay it off over 25 years. I realise that part of it relates to the fact that most people don't even think about paying the capital off any more, but even that interest bill is quite large if you lose a job and even larger if base rates ever did go up to a more usual level.

In this case, it sounded as though there would also be quite significant repayments on a loan taken out to top up the deposit.

Do people just base these decisions on the affordabilty right now without even looking at future risks?

It is a long time ago that people in general saved first to buy something.

Borrowing is a way of life. The banks drove this.

But it is also electronic cash. You no longer see the payment

If people handled the cash physically, got paid in cash and made payments in cash, it would be a quite different emotional transaction, whether for a computer, a car or a house.

Edited May 14, 2013 by LiveinHope

[LiveinHope]

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Edited May 14, 2013 by LiveinHope

[Bruce Banner]

It's all about affordability, has been for years. Even in the official dialog.

Most people could afford to spend ten pounds on a bag of crisps .

[goldbug9999]

I overheard a conversation on the train this morning where a young girl was talking to her friend about her plans to buy a flat. Huge sums of borrowing being talked about on a relatively tiny income.

It is certainly not the first time I have heard this type of conversation, often from people that I know to be very intelligent, and it got me thinking - has this boom just made everyone lose touch with the value of money? It seems very easy to talk about these massive sums.

For example, this morning's conversation involved a £400k mortgage. Even at 3% interest that is £1k per month in interest, plus another £1,300 per month in capital if you want to pay it off over 25 years. I realise that part of it relates to the fact that most people don't even think about paying the capital off any more, but even that interest bill is quite large if you lose a job and even larger if base rates ever did go up to a more usual level.

In this case, it sounded as though there would also be quite significant repayments on a loan taken out to top up the deposit.

Do people just base these decisions on the affordabilty right now without even looking at future risks?

Definitely. This is a constant problem for those of us potentially looking to buy at a sensible level e.g 2x income in my case - we are in competition with people like this young girl on the one hand and people who have been gifted 100+k equity via HPI on the other. Its f***** depressing.

Even my GF who is hugely in debt and living on benefits makes comments on how "cheap" a house is at quarter of a million quid.

[eric pebble]

I overheard a conversation on the train this morning ....//...

..//..

Do people just base these decisions on the affordabilty right now without even looking at future risks?

Look mate.....

This is NOTHING new....

JUST THINK -- LIAR LOANS --

Look at ALL the links below -- and you will see that EVERYTHING you are saying relates to behaviour over the last 10-15 years -- IT HAS ALL BEEN GOING ON FOR YEARS..... AND IT STILL GOES ON TO THIS DAY!!!!

& LIAR LOANS

ARE KEY TO ALL OF IT...................

Edited May 14, 2013 by eric pebble

[LC1]

It is a long time ago that people in general saved first to buy something.

Borrowing is a way of life. The banks drove this.

Depressing isn't it?

[Fully Detached]

Yes.

I was on the phone to an estate agent the other day, explaining that we wanted to buy something for cash but that we would consider a small mortgage to the tune of £15k if the perfect house came along. He immediately started trying to sell me something 50 grand over what we had been discussing, so I had to clarify that I'd said 15k and not 50k, at which he replied,

"Oh, so more of a personal loan then, really."

I had a good laugh about it, and I know 15k is ridiculously small, but the people who cant get their heads around me not wanting any bigger mortgage than that are the same ones who spend their entire lives bitching that they don't have any money, yet have somehow fail to join the dots.

It's a total failure to understand value - as has been said above, affordability is all that matters.

[juvenal]

It is a long time ago that people in general saved first to buy something.

Borrowing is a way of life. The banks drove this.

But it is also electronic cash. You no longer see the payment

If people handled the cash physically, got paid in cash and made payments in cash, it would be a quite different emotional transaction, whether for a computer, a car or a house.

Exactly. That's why casinos have coloured plastic chips, and never have cash on the tables.

[EUBanana]

The mother of all crashes, if it happens, will be excruciatingly painful but will have a very necessary effect on the psychology of the nation.

Basically, a whole bunch of idiots have to go bankrupt, and sooner rather than later.

[worried1]

Most people could afford to spend ten pounds on a bag of crisps .

That is the thing. A lot of people now seem to be being more careful with money in general - shopping in cheaper supermarkets, not upgrading the car, less discretionary spending etc, but this is often being done with the expressed intention of saving for a house and when it comes to that purchase they won't bothyer to quibble over the odd £30k here or there!

Saving £200 a month by skimping on essentials pales into insignificance very quickly if you overpay for a house in London by a few %.

[19 year mortgage 8itch]

I overheard a conversation on the train this morning where a young girl was talking to her friend about her plans to buy a flat. Huge sums of borrowing being talked about on a relatively tiny income.

It is certainly not the first time I have heard this type of conversation, often from people that I know to be very intelligent, and it got me thinking - has this boom just made everyone lose touch with the value of money? It seems very easy to talk about these massive sums.

For example, this morning's conversation involved a £400k mortgage. Even at 3% interest that is £1k per month in interest, plus another £1,300 per month in capital if you want to pay it off over 25 years. I realise that part of it relates to the fact that most people don't even think about paying the capital off any more, but even that interest bill is quite large if you lose a job and even larger if base rates ever did go up to a more usual level.

In this case, it sounded as though there would also be quite significant repayments on a loan taken out to top up the deposit.

Do people just base these decisions on the affordabilty right now without even looking at future risks?

Hence my £300k / £60k comment in the chatter thread.

I thought one of this site's memes was the amount of money sucked out of the economy and being shoved into property.

How can the economy recover unless we start spend elsewhere than rent and debt repayment?

The money spent at the moment doesn't seem to be going anywhere. For all the talk of taxing the rich and forcong them to spend cash, can't we have more of a system where they can't hoover up all the money to start with?

[Errol]

But it is also electronic cash. You no longer see the payment

If people handled the cash physically, got paid in cash and made payments in cash, it would be a quite different emotional transaction, whether for a computer, a car or a house.

This is far, far more important than many people realise. If payments had to be made with real coins/notes (even gold or silver!) people would be far more careful with their money.

[TheCountOfNowhere]

It is a long time ago that people in general saved first to buy something.

But it is also electronic cash. You no longer see the payment

You don't see the 1-5% they skim off the top either !!!!!

This country ( and the US ) is being run for the benefit of the bankers, no one else.

Most people I guess are indebted to the banks one way or another, they even take everyone's salary at the end of each month.

it's an unhealthy state of affairs.

[Errol]

The mother of all crashes, if it happens, will be excruciatingly painful but will have a very necessary effect on the psychology of the nation.

Not if. When.

[RichB]

Most people could afford to spend ten pounds on a bag of crisps .

Been to a pub lately?

[RichB]

It is a long time ago that people in general saved first to buy something.

Borrowing is a way of life. The banks drove this.

But it is also electronic cash. You no longer see the payment

If people handled the cash physically, got paid in cash and made payments in cash, it would be a quite different emotional transaction, whether for a computer, a car or a house.

Actually, the government did. Primarily through the student loans program - at a time when you could barely scrape a 400 quid overdraft, the student loans for 2k were being dropped right into your account.

Somewhere on here I wrote quite a lengthy piece about it; about the (in hindsight) cynical way they tempt you in with a bit here, a bit there, consolidate, spend.

Goes back to the early nineties as a strategem. I will see if I can find what I wrote, but there is a very clear plan of getting late teens/early 20s comfortable with huge debt levels right off the bat.

[kev-all-in]

Definitely. This is a constant problem for those of us potentially looking to buy at a sensible level e.g 2x income in my case - we are in competition with people like this young girl on the one hand and people who have been gifted 100+k equity via HPI on the other. Its f***** depressing.

Even my GF who is hugely in debt and living on benefits makes comments on how "cheap" a house is at quarter of a million quid.

Yep, I hear this!

A Girl at work the other day was going on about how 'cheap' houses were at the moment, she has just bought an average boring 3 bed semi for nearly quarter of a million! But to make it 'cheaper' (sic) they have gone for a 30year mortgage, despite having a large deposit and currently 2 decent wages - lol.

When I suggested that would make it much MORE EXPENSIVE not less, and interest rates are bound to go up over the next 30 years it was met with a blank expression, absolutely clueless. All that matters is the monthly payment, deposit can be borrowed on credit cards, and over paying the mortgage is akin to voluntarily giving your money away and pointless.

It would be funny if I wasn't forced to compete with these morons.

[RichB]

Here we go - the thread I was on about from 2009.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=108413

The rest of the thread is pretty good too, for back in the day.

The debt is peddled like drugs, only with the government saying its good for you.

They start you out gently, £400 interest free overdraft in your first year. A government backed loan for a couple of grand goes soon after.

Each year the levels are racked up, so by the end of 4 years its a 3k overdraft and a couple of 2k credit cards.

All then rolled into an 8k graduate loan with 4k overdraft facility and around 10k on the student loans.

The job you get at the end of it doesn't really cover the costs of rent, travel, a few decentish looking clothes for work, eating, council tax and debt maintenance. Maybe only 50 but probably closer to a couple of hundred quid deficit monthly, eating out that overdraft facility.

Pretty soon the credit cards come out, and as long as you make the minimum payment the limit creeps up, as does the outstanding balance.

You end up paying half your income in debt maintenance. So you consolidate the cards into another loan. Now you have 2x8k loans a massive overdraft facility and say 3 credit cards at 3k each. Oh - and still owe 10k on the student loans.

At that point best part of 26k in debt, earning maybe 23k. Still have facilities for another 13k of debt available... and a monthly deficit of £100.

Get rid of the easy debt facilities. Bin student loans, bin student overdrafts. Reinstate grants, not just means tested but abilities tested too - if the student merits some cash to study give it to them. Can the student union bars, remove the brewery sponsored binges.

Stop making out that debt is ok, debt is good - it's not.

[cashinmattress]

Agree about the issue of risk.

There is no downside to a young person in the UK taking out big loans.

Live large, screw up and lose it, repeat in a few years.

Where else in the world can you do this?

Keep on lying.

[EUBanana]

Not if. When.

So I dearly hope.

If when is in 40 years though it doesn't really matter to me!

[worried1]

Even my GF who is hugely in debt and living on benefits makes comments on how "cheap" a house is at quarter of a million quid.

I get this a lot as well, but I think it is most annoying when it comes from the 60+ generation.

I remember around 2000 just as all of this was kicking off, I'd show relatives from that generation the £100k 1-bed flats that were available at the time, and they'd be full of derision about how bad value for money they were. Show the same people the same flat at £275k now after 13 years of confidence-boosting price rises and they advise me to bite the seller's arm off!

The thing is, nothing has really changed in that time apart from cheap rates - the flat is exactly the same and wages are almost exactly the same in real terms.

Many from that generation also don't understand the difference between the 1970s and now in terms of house buying. I tend to get the stock response 'it was very expensive back then as well', but the fact is it is in a different league. The 3 bed semi that they considered a starter home was about 2x average local income in London in those days. Now these are £400k even in cheaper areas and I haven't noticed the average local income increasing to £200k!

[righttoleech]

Blair is desensitised......at least when in comes to his property collection......I hear he just bought another house for cash.....only £600,000 this time.

[Wurzel Of Highbridge]

The mother of all crashes, if it happens, will be excruciatingly painful but will have a very necessary effect on the psychology of the nation.

Basically, a whole bunch of idiots have to go bankrupt, and sooner rather than later.

You would thinks so, but in ROI I still find people who are borrowing the maximum they can. Luckily the banks here do not have the money to lend so the lending criteria is really strict along with LTV and multiples.

Another great thing is that the government do not have access to credit to interfere with the market. Unfortunately there is little money for road maintenance, but hopefully our property tax will help the situation.

Edited May 14, 2013 by Gone to Ireland.