Telegraph: Britons face a lifetime of debt as BoE warns over 35 year mortgages

[spyguy]

8 hours ago, Habeas Domus said:

The strange thing is that it's the central bank (BoE) which is issuing this warning.

It's a bit like Carney's regular: "I might have to put interest rates up one day" - then does nothing

The BoE: "We might have to do something about all this reckless lending" - then does nothing.

I am starting to wonder if it was a good idea separating the BoE from political control, it seems to me they can see exactly whats happening but they don't have the cojones to ever act on it.

Central bank independence was freed CBs from political influence.

It did not free them from the their own incompetence , group think, and the fact the macro economics is pure BS.

[Noallegiance]

48 minutes ago, spyguy said:

Central bank independence was freed CBs from political influence.

Lol

[Sancho Panza]

22 hours ago, DarkHorseWaits-NoMore said:

Worse still, I suspect many are borrowing to the max later into their 40s for 30+ years, then with each move taking them back to max 4.5x multiples, eventually clipped down by max lending term limits (up into your 70s now?). Which is a much deeper lifetime debt position, compared to the old 3x multiple for a standard 25yr term, taken on at ~25yrs old and expected to be paid off by arround 50 years old.

I've seen a number of people I know,roll 50% equity from their first house into 20% equity in the second.When you're approaching 50,you really want to be winding down on the leverage.

[Sancho Panza]

20 hours ago, thisisthisitmaybe said:

Although I'm no fan of Carnage Carney, the can had been kicked down the road many times before his appointment. Remember "steady Eddie" George? He was responsible for reducing rates in response to the dot-com crash, and said he expected his successor to sort it out. 

The issue is central bank interference in the regular boom-bust cycle that is the hallmark of capitalism (as well as a huge amount of crony collusion between the central banks and the wider financial system).

Until people rise up against central banks, nothing is going to change. Labour would do well to start attacking the B of E in parliament, it could be an election winner long term.

CB have a lot to answer for besides QE and ZIRP.

13 hours ago, Ah-so said:

The growth in longer mortgages is s direct consequence of MMR, the regulation introduced by the FCA. Because it sensibly assumes a stress level of about 7% on owner occupier mortgages  (even if the actual fixed rate is about 1%), borrowers are limited in what they can buy, even if they have quite a lot of spare income. 

Naturally this caps affordability and the only way borrowers can borrow a bit more under MMR is to lengthen the term. Behaviourally, I suspect that these mortgages have a relatively high over-payment rate, but have not seen the evidence for this. 

However, even taking this into account, lengthening mortgage terms is always associated with bubbles and Sam Woods is right to identify this as a symptom of an over-heated market. However treating the symptom will not cure the disease. 

Whilst correlation isn't causation,I think you're making a good point here.It's easy to look at the headline figure and jump to a conclusion,but sometimes there are more mundane reasons underlying it.

 

[Locke]

18 hours ago, anonlymouse said:

stocks and shares (average return 7%)

Lol.

[durhamborn]

13 hours ago, wotsthat said:

So you get someone leaving uni and then getting themselves settled into a job around the 25 to 30 year area which takes them pretty close to retirement age if they take on a 35 year mortgage. But they  had better find that special man/woman, and everything had better fall in place  in that very small window where you have enough time to take on a 35 year mortgage, and trust me when a few start doing it everyone else must.

Life is just going to get harder for most, you hit a little adversity through relationship break up, Buggered, you get ill, Buggered, so many things could trip you up in your long working life, but you fall off the ride you are not getting back on it.

I honestly believe that 90% plus people are potential aspirational enough to put their heart and soul into making something of there lives through hard work, but there has not been a political party in the last 20 years to fight for those on the outside looking in.

I think this sums up the situation.Back only 20 years a single person could buy easy on around 70% of the average wage.If you bought with someone else and it went wrong,it wasnt a disaster,you could both easily buy again.Ok maybe back down to a terrace but easy done.Most people i knew then bought between the ages of 20 and 25.None of them went to uni so none had any debts.However some of those are no better off for it.They MEWed the equity along the way,and now have full mortgages again in their mid 40s.They are now in the situation where they cant split up,cant be ill etc.They have joined the ranks of the young.

Im convinced a lot of the problem is people have forgot what happens in a big recession.Its been so long the end of this super cycle people think their tax credits not going up one year is a massive hardship and the mortgage rate going up to 2% is terrible.The central banks stopped a business cycle reset in 2008/9 and  the 90s only saw a mild downturn.You have to go back to the late 70s early 80s to see a real cycle turn.Im also convinced we are about to see the end of this dis-inflation cycle and it will go out with a bang.

I fully expect a deflation event before the end of next year.I also fully expect that will kick in printing that ends up with inflation and rates at double figure by 2025,perhaps much sooner.Those getting into their 50s thinking their house is their pension are in for a huge shock IMO.

[anonlymouse]

1 hour ago, Locke said:

Lol.

100 years of the FTSE All-Share Index since 1917

"Over the 100 years since 1917 the average annual return for the index has been +7.0%

How certain is a 10-year profit from investing in the Footsie?

"The research, which covers two decades from February 1996, also showed that the FTSE 100 generated an average 10-year total return of almost 70 per cent."

[Locke]

2 minutes ago, anonlymouse said:

100 years of the FTSE All-Share Index since 1917

"Over the 100 years since 1917 the average annual return for the index has been +7.0%

How certain is a 10-year profit from investing in the Footsie?

"The research, which covers two decades from February 1996, also showed that the FTSE 100 generated an average 10-year total return of almost 70 per cent."

If you are lucky enough not to get wiped out along the way.

Hey, if you manage to win off of it, good for you. I don't think it's worth the risk.

[Sancho Panza]

32 minutes ago, anonlymouse said:

100 years of the FTSE All-Share Index since 1917

"Over the 100 years since 1917 the average annual return for the index has been +7.0%

How certain is a 10-year profit from investing in the Footsie?

"The research, which covers two decades from February 1996, also showed that the FTSE 100 generated an average 10-year total return of almost 70 per cent."

That just about keeps you ahead of the devaluation of sterling over that period assuming you were able to precisely match the performance of the index with weighting changes etc.

http://inflation.stephenmorley.org/

 

 

Edited July 17, 2017 by Sancho Panza

[anonlymouse]

1 hour ago, Sancho Panza said:

That just about keeps you ahead of the devaluation of sterling over that period assuming you were able to precisely match the performance of the index with weighting changes etc.

http://inflation.stephenmorley.org/

Well yes, but the real value of the investment in itself is a different discussion altogether. The point is that in nominal terms the returns on investment are likely to be greater than the additional finance costs of extending the term. If you have an appetite for that risk then it's an option.

[Dorkins]

21 hours ago, mat109 said:

That'd be the gold standard at work though?

Unlikely to happen again...

Who needs the gold standard? Wages have been nominally static for about a decade now. No help from inflation there for people with big mortgages.

[spyguy]

On 17/07/2017 at 10:23 AM, durhamborn said:

I think this sums up the situation.Back only 20 years a single person could buy easy on around 70% of the average wage.If you bought with someone else and it went wrong,it wasnt a disaster,you could both easily buy again.Ok maybe back down to a terrace but easy done.Most people i knew then bought between the ages of 20 and 25.None of them went to uni so none had any debts.However some of those are no better off for it.They MEWed the equity along the way,and now have full mortgages again in their mid 40s.They are now in the situation where they cant split up,cant be ill etc.They have joined the ranks of the young.

Im convinced a lot of the problem is people have forgot what happens in a big recession.Its been so long the end of this super cycle people think their tax credits not going up one year is a massive hardship and the mortgage rate going up to 2% is terrible.The central banks stopped a business cycle reset in 2008/9 and  the 90s only saw a mild downturn.You have to go back to the late 70s early 80s to see a real cycle turn.Im also convinced we are about to see the end of this dis-inflation cycle and it will go out with a bang.

I fully expect a deflation event before the end of next year.I also fully expect that will kick in printing that ends up with inflation and rates at double figure by 2025,perhaps much sooner.Those getting into their 50s thinking their house is their pension are in for a huge shock IMO.

No, worse. They have a full mortgage, at 2-3 times the price they paid for the place 20 years ago. Without realising that as soon as you factor the funny money out they are massively in negative equity.

Still that 4x4 and Disneyland holiday were worth it. For a bit.

I know a quite a few people like this. Theyve spent their lifetime free cash + more in the last 15-20 years.

[adarmo]

On 17/07/2017 at 10:51 AM, anonlymouse said:

100 years of the FTSE All-Share Index since 1917

"Over the 100 years since 1917 the average annual return for the index has been +7.0%

How certain is a 10-year profit from investing in the Footsie?

"The research, which covers two decades from February 1996, also showed that the FTSE 100 generated an average 10-year total return of almost 70 per cent."

Just to be pedantic a 10 year return of 70% is not an annual return of 7%, it is an annual return of 5.5%. 

However, I am in agreement that conventional wisdom was that roughly speaking you'd get a 7% total return on the stock market 

[winkie]

People like tangible stuff like bricks, and gold....not stuff that has a price not knowing true value....everything is an illusion....puff and it's gone......a little bit of this and a little bit of that.

 

 

[durhamborn]

3 hours ago, spyguy said:

No, worse. They have a full mortgage, at 2-3 times the price they paid for the place 20 years ago. Without realising that as soon as you factor the funny money out they are massively in negative equity.

Still that 4x4 and Disneyland holiday were worth it. For a bit.

I know a quite a few people like this. Theyve spent their lifetime free cash + more in the last 15-20 years.

I actually know one who said you cant beat the memories of the kids smiling faces.Photos of them with Mickey Mouse,they MEWed to pay for those Florida holidays.Lost the house in the end,he lives in a terrible one bed place now on the sick after they split up,she rents,kids all above tax credit age,she is working 50 hours a week,rent £550 a month.They paid £34k for their house 20 years ago.The daughter had a kid at 15 though and she is now on the tax credits.

Edited July 18, 2017 by durhamborn

[Save me from the madness!]

4 minutes ago, durhamborn said:

I actually know one who said you cant beat the memories of the kids smiling faces.Photos of them with Mickey Mouse,they MEWed to pay for those Florida holidays.Lost the house in the end,he lives in a terrible one bed place now on the sick after they split up,she rents,kids all above tax credit age,she is working 50 hours a week,rent £550 a month.They paid £34k for their house 20 years ago.The daughter had a kid at 15 though and she is not on the tax credits.

That is a really tragic story and send a shudder down my spine of a family destroyed through self inflicted debt from a misguided desire to do something good. I agree with the philosophy of spending money on memories (whatever else happens with your life they can't be taken from you), though your example seems to have lost perspective of not protecting the basics first. Disneyland Paris would have brought just the same sort of magic, and in all honesty, I reckon a Butlins holiday would have given them just as many happy memories. I say Butlins as some of my happiest times as a kid were at Butlins with my parents and Grandparents and the amazing indoor water park. Much later in life I discovered on other holidays that there are some big water parks many times better, but my grandparents were no longer alive so I don't remember as much from those holidays and they certainly don't rank as some of my favourite memories in my life.

[durhamborn]

5 minutes ago, Save me from the madness! said:

That is a really tragic story and send a shudder down my spine of a family destroyed through self inflicted debt from a misguided desire to do something good. I agree with the philosophy of spending money on memories (whatever else happens with your life they can't be taken from you), though your example seems to have lost perspective of not protecting the basics first. Disneyland Paris would have brought just the same sort of magic, and in all honesty, I reckon a Butlins holiday would have given them just as many happy memories. I say Butlins as some of my happiest times as a kid were at Butlins with my parents and Grandparents and the amazing indoor water park. Much later in life I discovered on other holidays that there are some big water parks many times better, but my grandparents were no longer alive so I don't remember as much from those holidays and they certainly don't rank as some of my favourite memories in my life.

The people i know who say this sort of thing tend to be making excuses.They were the type who never saved etc before kids.MEWing is the problem.They run credit cards up/loans then MEW to pay them off.Idiots or victims depends on how you look at it.

[spyguy]

1 hour ago, durhamborn said:

The people i know who say this sort of thing tend to be making excuses.They were the type who never saved etc before kids.MEWing is the problem.They run credit cards up/loans then MEW to pay them off.Idiots or victims depends on how you look at it.

Well ...

Never saving is not too bad, at least in the oldish days when there was a non contrib DB pension and you were either in council hosing or paying a 25 year; You got your ages, you savings had been deducted - mortgage + pension - rest was yours to spend. 45 years down the line you had somewhere to live and something to live off.

Equity withdrawls went from being a product sold to aging aunts in houses things to product sold, at great expense, to Joe StillWorking and spendign too much. They are a dangerous product and should only be available to a few people in unusual circumstance.

A dumb, hungry financial sector is not something to have when the majority of UKpop does not grasp compouding IRs on debt.

[Democorruptcy]

At the last moment banks successfully lobbied to have the 25 maximum mortgage term removed from the MMR. As a result it's largely uselss when testing for affordability. Banks are using it to extend mortgages until the initial monthly payment is low enough to pass the affordability check. It's ridiculous because the longer term makes people pay more, so how is that really more affordable? 

[spyguy]

2 hours ago, Democorruptcy said:

At the last moment banks successfully lobbied to have the 25 maximum mortgage term removed from the MMR. As a result it's largely uselss when testing for affordability. Banks are using it to extend mortgages until the initial monthly payment is low enough to pass the affordability check. It's ridiculous because the longer term makes people pay more, so how is that really more affordable? 

Yes. Agreed. Mortgage term should not gp beyond current retirement age.

Thats one tweak that needs putting back in MMR.

Edited July 18, 2017 by spyguy

[Arpeggio]

MEW? MEWed? Is that mortgage equity withdrawal? This place needs a glossary. Also what is "IV" anyone please?

[Noallegiance]

28 minutes ago, Arpeggio said:

MEW? MEWed? Is that mortgage equity withdrawal? This place needs a glossary. Also what is "IV" anyone please?

Sod that.

I wanna know what a mirtgafe is.

[spyguy]

1 minute ago, Noallegiance said:

Sod that.

I wanna know what a mirtgafe is.

dont know what your on about ....

[Noallegiance]

6 minutes ago, spyguy said:

dont know what your on about ....

Lol nice

[Thorn]

1 hour ago, Arpeggio said:

MEW? MEWed? Is that mortgage equity withdrawal? This place needs a glossary. Also what is "IV" anyone please?

You need to be following these threads for  a longtime to get these codes. But IV? That's easy. It stands for IV got a great big massive loan on my shiny Evoque