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Fairyland

Rising Inflation: Help to Buy Impact

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It seems equity loan repayment is tied up with inflation.

http://www.moneysupermarket.com/mortgages/hubs/first-time-buyers/help-to-buy-scheme/

Quote

For the first five years, it’s interest-free. In year six, you will be charged 1.75% which will climb at a rate of 1% of that figure plus any increase in inflation (as measured by the Retail Prices Index (RPI)), every year thereafter. 

Interest free 5 years will end in 2018. What happens next? What if an overstretched borrower can't repay the interest on the equity loan? Will taxpayers foot the bill?

Edited by Fairyland

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9 minutes ago, Fairyland said:

It seems equity loan repayment is tied up with inflation.

http://www.moneysupermarket.com/mortgages/hubs/first-time-buyers/help-to-buy-scheme/

Interest free 5 years will end in 2018. What happens next? What if an overstretched borrower can't repay the interest on the equity loan? Will taxpayers foot the bill?

I dont know.

I guess we'll find out.

Maybe people wont think Gidiot and Camoron were so helpful after all.

HTB would only work if you are expecting your income to go up 30%+ in the low-cost years.

Without that bump you are fcked.

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The impact on student loans is what will really hurt. That is 3% +RPI. That means lots of 21 year olds with 50k debts accruing interest at around 7% compound. They'll all owe 100k+ by the time they're 30. Unless they have a parent who owns a property in Scotland.  I predict that Scottish property prices will soar as English parents bag themselves a Scottish postcode to save 100s of thousands in taxes for their kids. If you have children, it is the best tax avoidance scheme available. 

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It's like the fable about the goose with the golden eggs. At some point (and it's beginning to happen afaict) people will be so overloaded with debt they will have nothing to spend in the economy. But I guess all us on here know this. 

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5 minutes ago, ingermany said:

The impact on student loans is what will really hurt. That is 3% +RPI. That means lots of 21 year olds with 50k debts accruing interest at around 7% compound. They'll all owe 100k+ by the time they're 30. Unless they have a parent who owns a property in Scotland.  I predict that Scottish property prices will soar as English parents bag themselves a Scottish postcode to save 100s of thousands in taxes for their kids. If you have children, it is the best tax avoidance scheme available. 

Do you need to own a property in Scotland or will renting do?

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6 minutes ago, CunningPlan said:

Do you need to own a property in Scotland or will renting do?

https://www.thecompleteuniversityguide.co.uk/university-tuition-fees/going-to-university-in-scotland/

 

Resident, i think, so renting ok. It also looks like you get the fees paid if you are the EU (point1) if i have understood that correctly. I wonder how long you have to live there for to qualify. Perhaps it would be wise to move up there if you kids are going to go to uni. Of course they would still need to get into the uni of choice.

Edited by GreenDevil

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5 hours ago, CunningPlan said:

Do you need to own a property in Scotland or will renting do?

Sorry...of course renting is OK.  And I don't think owning a BTL in Aberdeen would qualify you as resident. You actually have to live there. There is probably a lot of value in it though, if you have 2 or more children. The savings over their working lifetimes of 35 years, is likely to be around 100k per child, but if inflation kicks off, it may be much much more once the loan starts accruing interest at RPI+3%. At that rate the loan will keep increasing faster than they can repay it. It means they are paying an extra 9% income tax for life.  If I had 3 kids I would move to Scotland. It would take the average person a long time to accrue savings of 300k in any other way.

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3 minutes ago, ingermany said:

Sorry...of course renting is OK.  And I don't think owning a BTL in Aberdeen would qualify you as resident. You actually have to live there. There is probably a lot of value in it though, if you have 2 or more children. The savings over their working lifetimes of 35 years, is likely to be around 100k per child, but if inflation kicks off, it may be much much more once the loan starts accruing interest at RPI+3%. At that rate the loan will keep increasing faster than they can repay it. It means they are paying an extra 9% income tax for life.  If I had 3 kids I would move to Scotland. It would take the average person a long time to accrue savings of 300k in any other way.

I think you need to be there for three years in advance. May be easier to move to France and apply to a Scottish uni from there.

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15 hours ago, ingermany said:

The impact on student loans is what will really hurt. That is 3% +RPI. That means lots of 21 year olds with 50k debts accruing interest at around 7% compound. They'll all owe 100k+ by the time they're 30. Unless they have a parent who owns a property in Scotland.  I predict that Scottish property prices will soar as English parents bag themselves a Scottish postcode to save 100s of thousands in taxes for their kids. If you have children, it is the best tax avoidance scheme available. 

Its actually something i considered.Being only 70 miles from the border i thought about doing just that and renting out the other two rooms under the rent a room scheme to pay the bills/break even.In the end i managed to get the kids on courses with bursaries and no fees (nursing) so they left with zero debt.Shocking situation though.

The RPI debt increases are a double hit as well because they have frozen the level where you start paying back,about £21k i think,so if wages go up even close to inflation your looking at a 50% tax rate.Why work?

 

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I can't see how anyone can justify how high these tuition fee are. They then have the nerve to whack 3% + RPI (not CPI funnily enough). It's a national disgrace. The negative effects on social mobility being the worst imo.

Edited by btl_hater

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3 minutes ago, btl_hater said:

I can't see how anyone can justify how high these tuition fee are. They then have the nerve to whack 3% + RPI (not CPI funnily enough). It's a national disgrace. The negative effects on social mobility being the worst imo.

May be they know that a good number won't be able to repay the whole/partial amount. So compensate losses by increasing payment of the paying ones.

Edited by Fairyland

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27 minutes ago, durhamborn said:

Its actually something i considered.Being only 70 miles from the border i thought about doing just that and renting out the other two rooms under the rent a room scheme to pay the bills/break even.In the end i managed to get the kids on courses with bursaries and no fees (nursing) so they left with zero debt.Shocking situation though.

The RPI debt increases are a double hit as well because they have frozen the level where you start paying back,about £21k i think,so if wages go up even close to inflation your looking at a 50% tax rate.Why work?

 

With Athos kind of tightening how long can people not afford to work?

Once on a London bus I overheard two young mothers having a passionate discussion about education, work and career. Conclusion: work will not even cover child care cost (£1200pcm 8+years ago) forget about rent + council tax + travel cost + school meal and fringe benefits. This not far from truth especially in London/Southeast.

Edited by Fairyland

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16 hours ago, One-percent said:

It's like the fable about the goose with the golden eggs. At some point (and it's beginning to happen afaict) people will be so overloaded with debt they will have nothing to spend in the economy. But I guess all us on here know this. 

That's why they can't raise rates. There is no money left.

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Just now, Fairyland said:

With Athos kind of tightening how long can people not afford to work?

I guess the answer is why work more than 16 hours.That is why schemes like HTB exist.To keep people working they need to trap them in huge debt.Student debt doesnt start being repaid until £21k,but i would fully expect that level is frozen so more and more end up paying it.Another banana skin left by Blair and Brown.

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1 minute ago, Blod said:

That's why they can't raise rates. There is no money left.

Exactly,and the only thing keeping things going was QE funding a 8% government deficit.Stop QE and we go into a huge deflationary depression,and that is exactly where we are heading.The reflationary cycle after that is where the big inflation will come.Locking young people into schemes like HTB was and is an utter disgrace.Massive negative equity or default for a rabbit hutch pile of cheap bricks and tat.

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13 minutes ago, durhamborn said:

Exactly,and the only thing keeping things going was QE funding a 8% government deficit.Stop QE and we go into a huge deflationary depression,and that is exactly where we are heading.The reflationary cycle after that is where the big inflation will come.Locking young people into schemes like HTB was and is an utter disgrace.Massive negative equity or default for a rabbit hutch pile of cheap bricks and tat.

The political classes don't care for disgrace, we only have to look at past performance to see that. What they haven't realised is the speed that these disasters are emerging. HTB, Shared Ownership, student loans are starting to be questioned. Only the other day I heard a housing VI warn that shared ownership might not help a young couple as it would help provide a sufficient uplift in equity for them to moving up should they start a family. My nephew is put off going to uni by the debt. 

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1 hour ago, durhamborn said:

Exactly,and the only thing keeping things going was QE funding a 8% government deficit.Stop QE and we go into a huge deflationary depression,and that is exactly where we are heading.The reflationary cycle after that is where the big inflation will come.Locking young people into schemes like HTB was and is an utter disgrace.Massive negative equity or default for a rabbit hutch pile of cheap bricks and tat.

We are in the reflationary cycle and have been since 2009. First with equities, later moving into land/houses (around 2012), then real wages (2014), then oil/commodities (2016) and so on.......

Merv was spot on when he said it would be zig & zag but the biggest error that can (and is) made is to believe we haven't had the deflation yet. Huge. The fact that so many still believe that to be the case is confirmation. There are still people who think there wasn't a HPC and there hasn't been an equity bull market. It's quite an astonishing & fascinating real time revelation into the failure of the human mind. 

Will we see more zags along the reflationary journey? Of course! 

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1 hour ago, btl_hater said:

I can't see how anyone can justify how high these tuition fee are. They then have the nerve to whack 3% + RPI (not CPI funnily enough). It's a national disgrace. The negative effects on social mobility being the worst imo.

Right now you can do a degree course (in English) in another EU country like the Netherlands for around €2k per year tuition if you are an EU citizen. I know a lot of US citizens go to Poland to do their medical degree, again many of the unis run courses in English, e.g:

http://www.cm-uj.krakow.pl/en/medschool.php

Competition, eh.

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I know someone who's help to buy repayments are about to kick in at the 1.75% rate which equates to £60 per month. However, the main problem comes as many of the people who acquired this product are unable to pay off the capital, and therefore will only pay interest. The capital must be paid off when the mortgage ends or the house is sold. 

IMHO, HTB has only been of benefit to the builders. 

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So life has to revolve around getting a uni place.  Move here there and everywhere even overseas to possibly secure a place - and then you get a job as a barista.

The plan isn't working for the average person is it.

 

Edited by billybong

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32 minutes ago, Sajid the Taxmeister said:

You don't get a job as a "Barista" - it is serving in a fast food outlet, with a silly job title, as it is free.

So the word isn't mentioned in the "contract".  There's not even that status - except you get to wear an outfit with the word on the back of it.  

So much for uni.

Edited by billybong

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