50% Of Take Home Pay!

[olliegog]

found this on MSE - I would think that with an expanding family they should be very afraid of a 325K mortgage over 25 years.

http://forums.moneysavingexpert.com/showthread.php?t=4814228

will wage inflation save them?

[giesahoose]

The current policies are just causing everyone to dig a deeper hole. The more debt people take on a zero interest rates the more pain its going to be when they go back up.

In addition to this starting at 0.25, interest rates going up by 0.25 causes interest to DOUBLE. When interest rates go up to 4% people are going to be screaming in pain.

The longer they leave it the worse its going to get.

[The Knimbies who say No]

These people are bona fide idiots. And some of the responses are pretty scary too, along the lines of "My £20k mortgage in 1980 was a lot so don't worry it's worth it in the end".

They just cant see the difference to today regarding interest rate risk and wage inflation. A recipe for repossession.

Edited November 8, 2013 by The B.L.T.

[TheCountOfNowhere]

I'm waiting for someone to say.

"When I took on my interest only £200K 120% NR mortgage in 2005 with my salary of 20K to buy a house in Northern Ireland I was **** scared of what would happen.

Almost 10 years on and my wages are still 20K, I've not paid any of the capital down and I have 90K of of negative equity.

I've just lost my job and suddenly £800 a month is an enormous sum of money to find.

I am not sure taking on debt and lining the bankers pockets is something I'd recommend to anyone."

That's the reality for some but obviously not the reality of some of the posters ( or their parents more likely ).

[@contradevian]

It's natural to feel a bit nervous about taking on a big new debt, but it is worth it in the end.

[Doesn't Commute Anymore]

Their fate all comes down to whether the economy can generate wage inflation to erode those payments to a smaller percentage of take-home amounts. My take is it wont as the labour market (lots of keen youngsters happy to work for a low-ish wage) and globalisation will hold it down.

Core inflation instead - which will eat into what take-home pay they have after mortgage.

Having said that, nice secure rental houses in Surrey are hard to find, so renting may be no better than servicing huge mortgage debt.

Edited November 8, 2013 by Does Commute Abit

[fluffy666]

found this on MSE - I would think that with an expanding family they should be very afraid of a 325K mortgage over 25 years.

http://forums.moneysavingexpert.com/showthread.php?t=4814228

will wage inflation save them?

So.. at 3%, repayment is £1540/month. So a take home of £3100/month, ~£55k salary.

Sad though, the DH in question is earning over twice the average wage, yet still can't support a slightly-above average house and family.

At 6% the repayment goes to £2100/month. Try bringing up kids on £1k a month after housing costs.. Although, of course, Our Great Chancellor thinks that these people don't need child benefit...

[slacker]

The reality is that it's a gamble - just as many on here are gambling there will be a correction.

Key components to living (property and pensions) should not be so unpredictable. It barely matters how smart or hardworking you are - as so many factors are completely unknowable and down to being in right place at right time.

I'm not a big-state advocate, but this is something the state should really be involved in.

The country needs 25 year fixed rate mortgages on low income multiples and a simple index-linked pension scheme. They don't need to be compulsory, but there needs to be some tax disincentive for not using them to reduce the number of people who get involved in speculation/risk.

[TheCountOfNowhere]

The reality is that it's a gamble - just as many on here are gambling there will be a correction.

Who's gambling. I'm about £100K better off since 2007 for not owning a house. I've moved 3 times for work now and I don't have the weight of a depreciating asset hanging round my neck.

People keep saying they are waiting for the collapse, the collapse is happening.

I'm waiting for the recovery.

[olliegog]

I imagine Surrey (being in the London/SE bubble parallel universe) is safer from a [price collapse and maybe their mortgage repayments (at the moment) are comparative with rental costs - but the thought of the financial burden of 325K for 25 years is very daunting especially as they are banking on 2 incomes at the moment.

[TheCountOfNowhere]

Did they say they had a 200K deposit.

Saving £1500 a month would have taken them about 10 years....they'd have to have been together as a couple of maybe 15 years before deciding to do this.

Or some mug might have gifted them some of their equity,

if it looks like a ponzi, walks like a ponzi, smells like a ponzi and talks like a ponzi...it's a ponzi.

Edited November 8, 2013 by TheCountOfNowhere

[slacker]

Who's gambling. I'm about £100K better off since 2007 for not owning a house.

Exactly - it's a gamble - some BTL'ers are up - some people who bought in '07 are down - property and pensions are just a big dice game.

It's a gamble for a well informed person - it should not be like that and half the population are below average intelligence.

Playing the dice game should be optional.

[The Knimbies who say No]

Did they say they had a 200K deposit.

Saving £1500 a month would have taken them about 10 years....they'd have to have been together as a couple of maybe 15 years before deciding to do this.

Or some mug might have gifted them some of their equity,

if it looks like a ponzi, walks like a ponzi, smells like a ponzi and talks like a ponzi...it's a ponzi.

Yes, they are 'reinvesting' their returns to date for a bigger payout down the line. Oh dear. 50% of take home and maternity coming up. Madness, utter madness. And to think the OP realises something is not right but is being reassured by 'money saving experts' that it is absolutely the right thing to do.

That said, seems like this thread has prompted a couple of new posts:

Malkin157 Today, 8:43 AM

Welcome to the Housing Ladder Express stopping at - Belt Tightening - Rate Rises - Mouths to Feed and Repossession Central.

A more likely scenario imo.

[The Knimbies who say No]

Exactly - it's a gamble - some BTL'ers are up - some people who bought in '07 are down - property and pensions are just a big dice game.

It's a gamble for a well informed person - it should not be like that and half the population are below average intelligence.

Playing the dice game should be optional.

It's the scale of the bets though that are the real killer. Most people could handle losing a decent chunk of a house price on a non-ludicrous income multiplier, if they bought at the wrong part of the cycle. Losing £20k on a £90k house is a bummer but not an absolute disaster if you earn £25k p.a. It is salvageable assuming there is disposable income to be diverted to covering it.

But when prices are 9 times main earnings, as is the case for these purchasers, a 10% loss is a year's gross salary, which for a higher rate payer on a stretchy mortgage payment to start with will take a very long time to make up, if they ever can.

Banks continue to enjoy great success at convincing people like the MSE poster that the safety net of spare earnings capacity should instead be diverted to the house purchase too. It is breathtaking how many people are willing to submit to this idea.

Old habits die hard though, throughout the 70s and 80s people generally approached house purchases by taking on as much debt as they could get their hands on. This was the generally accepted best practice, and most sensible approach! And as it worked out so well for these types, they can't help but share their great advice in an environment of static wages and centuries-low base rates. Hmm.

[winkie]

So moving from a two bed to a four bed......is the four bed worth the extra pain?.....will by paying extra for a four bed improve the quality of life?.....as already mentioned 50% of £30k is quite different to 50% of £60k.

One leaves you with £15k to live the other leaves you with £30k to live.....so all depending, every situation is different.

[Starla]

Posters Reply "GoldieGirl" - "Our £21500 mortgage in 1981 was considered big, and the £82,500 mortgage we took out in 1989 was thought to be enormous!

It's natural to feel a bit nervous about taking on a big new debt, but it is worth it in the end"

Correct, the £82,500 mortgage in 1989 WAS enormous. She just missed out the rest of the story where she bought at the height of a bubble, interest rates subsequently shot up to circa 15%, mass repossessions and the price wouldn't have recovered until nearly 10 years later. But it was all worth it.

Who's "The_Masked_Turnip" posting on page 1?

[John The Pessimist]

Jesus wept............. One of the MSE posters wrote the drivel below;

"Wow, you've got me a bit scared now!

Live in Acton, bought last spring: borrowed 325k on a house valued at 385k.

Values have gone crazy, so we are remortaging to get a better LTV and, therefore, monthly repayment.

We will now be borrowing 355k on a the same house now valued at 550k.

As a couple on full-time wages, we take home £5000. Would have been paying £1600/month (32%), but will be paying <£1300/month (26%).

The total amount of debt sounds massively scary, but I think it's only the monthly payments that are relevant, really."

"Valued" at £385K (real value £325K) last Spring. Now "worth" £550K. Has the Daily Express put this story on the fromt page yet?

[slacker]

"Valued" at £385K (real value £325K) last Spring. Now "worth" £550K.

Couple more years and they'll be millionaires [Rodders]

[The Knimbies who say No]

Jesus wept............. One of the MSE posters wrote the drivel below;

"Wow, you've got me a bit scared now!

Live in Acton, bought last spring: borrowed 325k on a house valued at 385k.

Values have gone crazy, so we are remortaging to get a better LTV and, therefore, monthly repayment.

We will now be borrowing 355k on a the same house now valued at 550k.

As a couple on full-time wages, we take home £5000. Would have been paying £1600/month (32%), but will be paying <£1300/month (26%).

The total amount of debt sounds massively scary, but I think it's only the monthly payments that are relevant, really."

"Valued" at £385K (real value £325K) last Spring. Now "worth" £550K. Has the Daily Express put this story on the fromt page yet?

Remortgaging and taking £30k(6 month's gross salary) off the magic money tree at the same time and getting a lower monthly to boot. Free money...

£355k over 25years at 0% interest is £1,200 pcm so FK what rate/term they are on to get a £1,300 monthly. Probably a teaser fix. What could go wrong?

[tomandlu]

Values have gone crazy, so we are remortaging to get a better LTV and, therefore, monthly repayment.

We will now be borrowing 355k on a the same house now valued at 550k.

As a couple on full-time wages, we take home £5000. Would have been paying £1600/month (32%), but will be paying <£1300/month (26%).

Can someone explain this to me? How does borrowing more give you a better LTV? How does borrowing more give you a lower monthly payment?

[fluffy666]

Jesus wept............. One of the MSE posters wrote the drivel below;

"Wow, you've got me a bit scared now!

Live in Acton, bought last spring: borrowed 325k on a house valued at 385k.

Values have gone crazy, so we are remortaging to get a better LTV and, therefore, monthly repayment.

We will now be borrowing 355k on a the same house now valued at 550k.

As a couple on full-time wages, we take home £5000. Would have been paying £1600/month (32%), but will be paying <£1300/month (26%).

The total amount of debt sounds massively scary, but I think it's only the monthly payments that are relevant, really."

"Valued" at £385K (real value £325K) last Spring. Now "worth" £550K. Has the Daily Express put this story on the fromt page yet?

Interestingly, I cannot get <1300/month in a £355k mortgage on the nationwide calculator... unless the term goes up to 30+years with IRs <2%.

Please tell me they are not doing IO with a huge mortgage when the going is good, wage-wise..

[CentrinoDuo]

Can someone explain this to me? How does borrowing more give you a better LTV? How does borrowing more give you a lower monthly payment?

LTV reduced due to higher house valuation of 550k. So even at higher borrowing cost the rate is lower.

They may also increase the term as well it's very common to have 30yr mortgage now.

[tomandlu]

LTV reduced due to higher house valuation of 550k. So even at higher borrowing cost the rate is lower.

They may also increase the term as well it's very common to have 30yr mortgage now.

But wouldn't they have had an even better LTV by not borrowing more? They're not getting a better LTV by borrowing more, they're getting a better LTV due to the new valuation, surely?

[The Knimbies who say No]

Can someone explain this to me? How does borrowing more give you a better LTV? How does borrowing more give you a lower monthly payment?

House value has increased even more to offset additional borrowings, and clearly the lower LTV allows access to rates which lower the repayments by more than the additional borrowings cost. It's a snake eating tail scenario, and the opposite can happen too.

[erat_forte]

Remortgaging and taking £30k(6 month's gross salary) off the magic money tree at the same time and getting a lower monthly to boot. Free money...

£355k over 25years at 0% interest is £1,200 pcm so FK what rate/term they are on to get a £1,300 monthly. Probably a teaser fix. What could go wrong?

Oh dear, I don't really see the relevance of that. Who actually repays their debts these days?