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Got chatting to a friend last night that's looking to relocate from Swindon to Reading, Of the people I know this sort of thing is probably common. Here goes:

He buys a flat two years ago, 130K, 5% deposit, interest only mortgage without even a thought about any savings to pay off the capital.

One year ago has the flat valued at 145K, takes out a 15K loan secured against the property to pay off credit cards etc.

He's now looking to sell up and move, a quick look on nethouseprices shows an identical flat in the road recently sold for 130K. So from the look on his face I think it dawned on him that he's in negative equity.

At this point I was expecting him to say he'll put it on the market for 145K as he has to sell for that amount to cover the loan secured on it however he seemed quite realistic about what it would sell for (actually to my surprise) and decided he'll convert the secured debt to unsecured debt instead!

My key point here is despite the facts:

Two years of paying an interest only mortgage

Mortgage payments greater than rent for a similar place

No capital appreciation

Fees stamp duty and all the other costs involved with buying and selling property

Renting was not mentioned once and he's already got his heart set on a new flat in Reading (viewing it on the weekend). I know if I mentioned renting the reply would have been, "well that's wasted money paying someone elses mortgage"

Certainly in my group of friends this attitude is ingrained in them all, even when they end up in a bit of a financial mess. With rents as low as they are even compared to an interest only mortgage this amazes me. He attitude might change when he gets low offers on his flat, but we'll wait and see. I'll post an update when it's on the market.

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I know an IT contractor who had a cottage in Surrey - Farnham - and almost lost it 2 years ago when the IT market was dire and he had no income coming in.

He has just sold it and basically made 400K on it. He is now about to buy some yuppie flat for 500K in central London. Will he lose or will he win? Only time will tell.

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It's all in the mind.

Without wanting to start a debate over the usual buying verses renting, long term etc, in his mind the flat was his, not a landlord's.

So important to many. Other threads talking about consumption etc are all part of the same.

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Got chatting to a friend last night that's looking to relocate from Swindon to Reading, Of the people I know this sort of thing is probably common. Here goes:

He buys a flat two years ago, 130K, 5% deposit, interest only mortgage without even a thought about any savings to pay off the capital.

One year ago has the flat valued at 145K, takes out a 15K loan secured against the property to pay off credit cards etc.

He's now looking to sell up and move, a quick look on nethouseprices shows an identical flat in the road recently sold for 130K. So from the look on his face I think it dawned on him that he's in negative equity.

At this point I was expecting him to say he'll put it on the market for 145K as he has to sell for that amount to cover the loan secured on it however he seemed quite realistic about what it would sell for (actually to my surprise) and decided he'll convert the secured debt to unsecured debt instead!

My key point here is despite the facts:

Two years of paying an interest only mortgage

Mortgage payments greater than rent for a similar place

No capital appreciation

Fees stamp duty and all the other costs involved with buying and selling property

Renting was not mentioned once and he's already got his heart set on a new flat in Reading (viewing it on the weekend). I know if I mentioned renting the reply would have been, "well that's wasted money paying someone elses mortgage"

Certainly in my group of friends this attitude is ingrained in them all, even when they end up in a bit of a financial mess. With rents as low as they are even compared to an interest only mortgage this amazes me. He attitude might change when he gets low offers on his flat, but we'll wait and see. I'll post an update when it's on the market.

renting is dead money

currently doing up a house and needs a lot doing to it - rented another one because its not currently liveable anyway we moved into rented before the purchase went through and i was recently with a group of accountants telling them about this and one of them said renting is just dead money and most of the others nodded. I explained to them the current cost of the rented house if i had an interest only mortgage (much higher than the rent charged) and they just looked stunned - and these are people who should be some of the most financially literate.

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currently doing up a house and needs a lot doing to it - rented another one because its not currently liveable anyway we moved into rented before the purchase went through and i was recently with a group of accountants telling them about this and one of them said renting is just dead money and most of the others nodded. I explained to them the current cost of the rented house if i had an interest only mortgage (much higher than the rent charged) and they just looked stunned - and these are people who should be some of the most financially literate.

This all comes back to the 'denial' situation that we find ourselves in. For years it made more sense for people to buy than to rent and this thought has just stuck with so many people for so long. It is going to be difficult to get people to think differently and even I, after all I have read, still have that element of doubt in my mind about it.

The issue of the accountants is worrying though - surely, at the very least, they read magazines like The Economist, Moneyweek or financial articles in various newspapers? At the VERY least surely they have an understanding of the current situation and could at least put forward an argument to back up their position on buying versus renting... obviously not.

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This all comes back to the 'denial' situation that we find ourselves in. For years it made more sense for people to buy than to rent and this thought has just stuck with so many people for so long. It is going to be difficult to get people to think differently and even I, after all I have read, still have that element of doubt in my mind about it.

The issue of the accountants is worrying though - surely, at the very least, they read magazines like The Economist, Moneyweek or financial articles in various newspapers? At the VERY least surely they have an understanding of the current situation and could at least put forward an argument to back up their position on buying versus renting... obviously not.

yes it is worrying to find myself in the minority - the average age of the others was probably 50ish - i'm 36 - they ought to have a better understaning especially as they will be advising people on both their business and possibly personal finances.

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The really weird thing is that people do not realise that IO mortgages are merely RENTING by another name! If you have not saved to pay off the capital in some way the property goes the the lender as a repo! But no thinks about it those terms.

If the IO mortgage is high than rent you are LOSING!! People are.... well dumb, frankly!

Sorry rant over. <_<

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If the IO mortgage is high than rent you are LOSING!! People are.... well dumb, frankly!

You are, of course, perfectly correct. However, sentiment is a big driver of Human Beings plus, here in the UK, the snob mentality of not just keeping up with the Jones but being 'better' than them is all persuasive!

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You are, of course, perfectly correct. However, sentiment is a big driver of Human Beings plus, here in the UK, the snob mentality of not just keeping up with the Jones but being 'better' than them is all persuasive!

Yeh! To the point of self destruction. So long as I can keep Mrs FTBagain from believing the spin we could do well out of the going Crash, but it is astruggle. Hence my rant. Ho Hum! :D

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he'll convert the secured debt to unsecured debt instead!

That would be a good trick. I would like to know how he intends to do that. Lenders don't tend to like relinquishing a security/collateral when it formed the basis of their lending decision.

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That would be a good trick. I would like to know how he intends to do that. Lenders don't tend to like relinquishing a security/collateral when it formed the basis of their lending decision.

Yes I wondered about this too, I didn't pry into it, but assumed it'll be a case of borrowing the money from parents or worse stick if on a credit card.

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That would be a good trick. I would like to know how he intends to do that. Lenders don't tend to like relinquishing a security/collateral when it formed the basis of their lending decision.

He could take out a new CC and pay off the secured debt with a crash withdrawl from the CC.

Everyone, has a good wheeze for paying off debts, except, of course, stop spending and pay off the debt.

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yes it is worrying to find myself in the minority - the average age of the others was probably 50ish - i'm 36 - they ought to have a better understaning especially as they will be advising people on both their business and possibly personal finances.

Er, excuse me but when did an accountant ever give advice?

They do the books, work out tax and suggest paying more divvies than schedule E which frankly is not complex

Accts do not give advice. They are not trained to. They understand Companies Acts or the Partnership Act but really. Advice?

They simply do a simple job.

Advice is actually saving tax, planning, investing, protecting etc

Someone correct me if I'm off base but I've never seen acct actually give advice whatever THEY may call it.

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Its all good, all of the time..

I was told by a smug git yesterday that his grandfathers house had gone up 8% a year overall since he had bought it.

I said, house prices are static against inflation.. That they do rise and fall about an average, but the average price against the average wage has been steady.. but it does oscilate wildly about the average.

8% a year...?? well house prices have gone up on average 250% in the last 6 years in Devon.

and if you look at the massive inflation in the 70's and 80's..

I suggested to look at the graphs. look at how average house prices have moved aroung the average wage..

I said he might find it interesting..

He said that prices will never come down.

I said they always had before..

This time its different...

I got bored..

I hope I am right.

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I work in accounts and find the knowledge is a complete mixture. One girl with a reasonably senior position was 20k in debt and didn't care/couldn't get out of it. My manager (who earns 40k) says the only reason he s not in debt is cos no one will lend him any money! He forgets to repay credit cards and so is now a credit risk!

However my FD is finicially literate and knows the current situation and is impressed that I know a bit (mostly from reading this site). Between the two of us we are currently explaining to my manager that for our retail chain to be up 6% on sales year on year is very good in the current climate! Its more to do with a bad last year I think than a good year this year.

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And another good anecdotal..

A colleague purchased a 1 bed flat @ £90K March 2004 forced to sell in June 05 for £84K after on market for 6 months. Wouldn't tell me the real reason for sale.

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Er, excuse me but when did an accountant ever give advice?

They do the books, work out tax and suggest paying more divvies than schedule E which frankly is not complex

Accts do not give advice. They are not trained to. They understand Companies Acts or the Partnership Act but really. Advice?

They simply do a simple job.

Advice is actually saving tax, planning, investing, protecting etc

Someone correct me if I'm off base but I've never seen acct actually give advice whatever THEY may call it.

your off base

up until n2 a lot of accountants were authorised by their own regulatory body to do mainstream investment advice.

http://www.accountancyage.com/accountancya...ock-small-firms

accountants should be saving tax, helping people plan both in their business and personal investments - obviously if it is something they are not trained or authorised in they should refer it.

if someones accountant isn't helping them plan with their business and save tax then they should change their accountant.

me thinks your making a bit of a generalisation here - a bit like saying all financial advisers haven't got a clue about the economy are only interested in obtaining the highest commission rate, churning policies to earn more commission and aren't much better than car salesman.

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Er, excuse me but when did an accountant ever give advice?

They do the books, work out tax and suggest paying more divvies than schedule E which frankly is not complex

Accts do not give advice. They are not trained to. They understand Companies Acts or the Partnership Act but really. Advice?

They simply do a simple job.

Advice is actually saving tax, planning, investing, protecting etc

Someone correct me if I'm off base but I've never seen acct actually give advice whatever THEY may call it.

It would appear that you are tarring every accountant with the same brush, of course some of them give advice and guidance, they don't all just count beans.

Do you know anything about studying for the qualification and what you are required to know and understand? (genuine question)

Companies Act is just a tiny part of what you need to know.

Those so called accountants are possibly in denial, don't want to except the pending outcome of all this madness.

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He buys a flat two years ago, 130K, 5% deposit, interest only mortgage without even a thought about any savings to pay off the capital.

One year ago has the flat valued at 145K, takes out a 15K loan secured against the property to pay off credit cards etc.

He's now looking to sell up and move, a quick look on nethouseprices shows an identical flat in the road recently sold for 130K. So from the look on his face I think it dawned on him that he's in negative equity.

Something I do not understand about this post.

Property bought towards end 2003 for £130k.

Using the Nationwide data for late 2003 to current prices the property should now be worth approx £159k

http://www.nationwide.co.uk/hpi/default.asp

Now I know there are plenty of people on this website who doubt the accuracy of the building society data but can anyone explain why this person has made no gain at all on their property? Did they pay way over asking price two years ago?

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The really weird thing is that people do not realise that IO mortgages are merely RENTING by another name! If you have not saved to pay off the capital in some way the property goes the the lender as a repo! But no thinks about it those terms.

<_<

What about the 'often massive' capital gain on the property???

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What about the 'often massive' capital gain on the property???

OK I buy a house and pay io.

at the end of 25 years I have made a capital gain. but I have to pay back the amount I bought the house for?

So I have to see the house to pay for it?

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So I have to see the house to pay for it?

you've lost me?

How's about this one....

"The really weird thing is that some people realised years ago that IO mortgages were a way of making bags of cash! They never saved to pay off the capital!"

Don't worry I'm a believer in a house price cash, it just strikes me that some of you folks need to have a more open/balanced view sometimes <_<

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Er, excuse me but when did an accountant ever give advice?

They do the books, work out tax and suggest paying more divvies than schedule E which frankly is not complex

Accts do not give advice. They are not trained to. They understand Companies Acts or the Partnership Act but really. Advice?

They simply do a simple job.

Advice is actually saving tax, planning, investing, protecting etc

Someone correct me if I'm off base but I've never seen acct actually give advice whatever THEY may call it.

Very true - although there are exceptions.

I have several accountants as clients, and know many more. Some of the latter I would not employ to make the tea. :D

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The really weird thing is that people do not realise that IO mortgages are merely RENTING by another name! If you have not saved to pay off the capital in some way the property goes the the lender as a repo! But no thinks about it those terms.

Correct, but because IO is also highly leveraged speculative play, while renting is simply consumption of housing, historically, ownership has tended to be better than renting, even with IO mortgages.

Iin times of inflation and rising house prices (which is always, right??) you do lose out by renting, even if the monthly cost is lower. You could buy a house on an IO, pay no principal off for 20 years, flog it for a vastly inflated amount, pay off the lender and walk away with the cash, whereas a renter really would have nothing to show for all that "paying someone else's mortgage".

Of course, if inflation is low or the house price falls from what you paid....

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You could buy a house on an IO, pay no principal off for 20 years, flog it for a vastly inflated amount, pay off the lender and walk away with the cash

Yes, but what would you do with all that cash? In your scenario house prices have inflated massively, so the money you have left over after paying off your IO mortgage will not buy much in the way of property.

Step 1: Buy property for £X with IO mortgage.

Step 2: Wait 25 years (servicing interest payments only). Nominal property prices double in this time. Your house is now worth £2X.

Step 3: Flog house, pay off IO mortgage. You are left with £X. This will not be enough to buy a property similar to the property you sold, as house prices have doubled. Will it be enough to pay your rent for the rest of your life? Who knows?

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  • 301 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%



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