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classixuk

People Forced To Buy At Ridiculously High Prices

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Many of you who have read my posts in the past will know my viewpoint on mortgage equity withdrawl. If so, skip the next paragraph.

For those of you who have not heard my theory on MEW, I decided long ago that it was basically UK homeowners buying their own houses back off themselves. It works like this:

A Hot Summers Day, England, 2004

Estate Agent: "Hey Property owner. This house you bought in 2001 for £100K; it's worth £175K now!"

Property Owner: "Wow, I must be rich. How do I get my hands on my money?"

Estate Agent: "That's easy. Just sell your house."

Property Owner: "But I like living here. Anyway, I can't afford to move right now."

Estate Agent: "Well that's easy. Why not just buy your own house back off yourself? You've already paid £100K, so just get an extra mortgage for £75K and bobs your uncle, you've sold your house for £175K. You'll be rich."

Property Owner: "Cool idea. Where do I sign?"

I really do believe that MEW will be as dirty a term in the future as endowment is today. 2003-2005 will go down in history as the period UK homeowners bought their own houses back off themselves.

So, back to my post.

Thinking about the fact that the rest of the western world seem to be increasing interest rates systematically, there is every chance that the UK BoE may just have to follow suit over the next 2 years. Has anyone given any thought to the UK citizens who luckily bought at a good time (up to 2002) but have since bought their properties back off themselves at 2004/05 prices? Perhaps there may be more forced sellers than we previously imagined.

I'll explain very simply:

Property Owner buys house in 2000 for £86K at 6%. Monthly repayment = £560

In 2004 Property Owner buys house back off himself £162K at 4%. New Monthly repayment = £865

With the proceeds of the sale, Property Owner leaves work, sets up an Art Gallery and builds an extension to their house.

Fast forward to today. At 4.5% property owner is now paying £910 per month. Art Gallery is making a loss due to poor retail sales and property owner is becoming stressed.

If interest rates go up by just 2 quarter points over this year, the payment becomes £958 per month.

How long can it carry on? How optimistic can the property owner be living in a house that in the space of 2 years jumped from costing £560 per month to £958? How long before the property owner finds the monthly payments not just hard, but nigh on impossible?

The MEWers may be a very interesting segment of the market to watch over the next 2 years! Perhaps we will begin to see TV adverts along the lines of "Missold a MEW policy? If you were not told the following things when you MEW'd contact us to get compensation......".

Is the above story similar to any of your friends/family/co-workers who MEW'd? Did they invest "their" money into an asset which hasn't performed as well as they thought it would? It might be interesting to discuss this. What do you think?

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Hi,

Add to that interest-only mortgages. For those unfamiliar with the cut throat nature of UK personal finance and financial advisors or things from the past like endownment mortgages, dot.com trusts, pension surrenders, etc., I am nailed on certain those are ticking timebombs chained to the ankles of some owner-occupiers.

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Also I think the core problem for these people is they are spending more than they are earning. A lot of these mewer's will get here 75,000 in the bank, blow loads of it but crucially use the same money to pay the new higher mortgage each month.

They won't feel the bite until all the 75,000 is blown then they will struggle to pay the mortgage. The same is true for people that get in credit card debt, any new debt ends up paying off the old debt. Of course for home owners the rising market has kept putting of the end game!!

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People will MEW to buy BTL...these are the muppets who will go bankrupt and deservedly so.

People will increase the debt against their houses to buy consumer goods that frankly aren't going to be worth half what they paid for them (plasma tv, AGA, conservatory, overseas holidays etc.). So they end up paying for 25 years for something with a useful life of 1-10 years. How sensible is that?

Perhaps we should stop calling mortgages that and call it debt instead. Perhaps then people would realise that they aren't worth £500k if they have a house worth £500,000 when they have a £400,000 mortgage. They actually have £100k of hard-to-reach equity.

Debt is debt and should be repaid.

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I guess you could MEW to invest the capital in better performing sectors (which beat the mortgage rate).

I don't think many have the balls to do that though...

Edit: ClassixUK is replying to WW not me. :)

Edited by Nijo

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Totally agree!

That's what I hate about the term "Mortgage Equity Withdrawl".

When I withdraw money from my current account it does not have to be paid back.

When I release the equity in an asset, I do not have to pay the equity back (I have sold the asset).

There is nothing to withdraw from your home if you have to pay it back. It should be marketed by the name it refers to: "A secured loan against your home".

:angry:

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Don’t get me wrong – I think these people will be completely scr*wed in the long run – but I think it is more likely that rate will be held or reduced 2 quarter points and the housing market will carry on as before. The bank knows that the economy can not take any increases – so I feel these people will be saved for the time being

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Property Owner: "Cool idea. Where do I sign?"

I really do believe that MEW will be as dirty a term in the future as endowment is today. 2003-2005 will go down in history as the period UK homeowners bought their own houses back off themselves.

Is the above story similar to any of your friends/family/co-workers who MEW'd? Did they invest "their" money into an asset which hasn't performed as well as they thought it would? It might be interesting to discuss this. What do you think?

No one is forcing anyone to buy at ridiculous prices.

No one is forcing anyone to do anything they don't want to do when buying a home. It's a personal choice.

Why are you getting your knickers in a twist about MEW ? No one is forcing you to take it out. It was a free country the last time I looked and if people want to MEW then I personally assume they are old enough and ugly enough to make a choice that's right for them. Why do you insist on imposing your morals and ethics on other people, making up fictitious anecdotes, only to ridicule them if it's not your particular way of thinking ? Why the morbid phobia about debt ? Not all debt is bad. Mortgages are good debt. Are we to assume that the halcyon days of 1950s Britain, when hire-purchase and the never-never were such dirty words, should come back? And most people lived in a wonderful council-housed Utopia, complete with outside lavatories, coal fires, tin baths, Izal lavatory paper and commuting to work on the Clapham omnibus ? I much prefer my mortgaged piece of luxury and creature-comforts now, rather than waiting, thank you.

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No one is forcing anyone to buy at ridiculous prices.

No one is forcing anyone to do anything they don't want to do when buying a home. It's a personal choice.

Why are you getting your knickers in a twist about MEW ? No one is forcing you to take it out. It was a free country the last time I looked and if people want to MEW then I personally assume they are old enough and ugly enough to make a choice that's right for them. Why do you insist on imposing your morals and ethics on other people, making up fictitious anecdotes, only to ridicule them if it's not your particular way of thinking ? Why the morbid phobia about debt ? Not all debt is bad. Mortgages are good debt. Are we to assume that the halcyon days of 1950s Britain, when hire-purchase and the never-never were such dirty words, should come back? And most people lived in a wonderful council-housed Utopia, complete with outside lavatories, coal fires, tin baths, Izal lavatory paper and commuting to work on the Clapham omnibus ? I much prefer my mortgaged piece of luxury and creature-comforts now, rather than waiting, thank you.

I agree with you it is a free country and people should make their own choices. However there should be no come back if you borrow at a set interest rate you should repay all the debt at that interest rate. If you are stuck with negative equity you should either stay in the house servicing the debt or move and repay the equity to the bank.

What I hate in this country is people saying it is a free country but then not taking responsibility for their actions. In the end it is the people that don't get into debt that have to pay for others that do. The reason that house prices are so high is a combination of low IR and people borrowing huge amounts of money and having no chance of paying their debts back at even slightly higher IRs.

So there should be no bankruptcies and banks or government bailing people out.

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blah blah blah Why do you insist on imposing your morals and ethics on other people, making up fictitious anecdotes, only to ridicule them if it's not your particular way of thinking ? blah blah blah

I think it's you who has got your knickers in a twist Fanny. I only wrote a post on an internet site. I have no idea which fictitious anecdotes you're talking about either.

Thanks for the reply though :D

Edited by classixuk

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:lol:

I've just looked up some of your posts Fanny Magnet.

It seems to me that you should start taking your own advice and stop ridiculing those who do not agree with you. You're angry at almost everybody here, that much is evident. I see you've only been a member for 3 weeks. It doesn't take much to piss you off does it?

A little etiquette goes a long way. On the internet, the general rule of thumb is that when you disagree with something you read you should attack the post and not the poster. Try to remember that and you should be just fine.

Why ARE you so angry by the way?

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No one is forcing anyone to buy at ridiculous prices.

No one is forcing anyone to do anything they don't want to do when buying a home. It's a personal choice.

Why are you getting your knickers in a twist about MEW ? No one is forcing you to take it out. It was a free country the last time I looked and if people want to MEW then I personally assume they are old enough and ugly enough to make a choice that's right for them. Why do you insist on imposing your morals and ethics on other people, making up fictitious anecdotes, only to ridicule them if it's not your particular way of thinking ? Why the morbid phobia about debt ? Not all debt is bad. Mortgages are good debt. Are we to assume that the halcyon days of 1950s Britain, when hire-purchase and the never-never were such dirty words, should come back? And most people lived in a wonderful council-housed Utopia, complete with outside lavatories, coal fires, tin baths, Izal lavatory paper and commuting to work on the Clapham omnibus ? I much prefer my mortgaged piece of luxury and creature-comforts now, rather than waiting, thank you.

Absolute crap. When was any type of debt a good debt? If debt cannot be repaid, it affects everyone, include the selfish dumb ****** who thinks me, me, me. You can have all your creature comforms now; just don't cry like bitch when the debt gets recalled.

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Look at it from the borrower's perspective, starting with no money. Say, they can borrow 10X their salary and spend it on a house, interest only mortgage (might have to be creative on the mortgage forms).

Their are a three possible outcomes, judging by what I've read on this site:

1.) House price collapse. They spend their money on beer, so sorry Mr. Banker can't pay the mortgage I'm bankrupt.

2.) Fiat Money Collapse. Pound becomes nearly worthless, they win a free house.

3.) House prices continue to rise. They sell at a big profit.

The borrower does fine, either they break even, they get a free house, or they get lots of money.

Compare it to the saver who loses out on two of the three options.

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I feel sorry for the families with little or no financial/economic knowledge who have MEW'd to help children/family/ex-spouse buy a first property at inflated prices. These families will now all get hit by neg. equity when the HPC arrives.

When the HPC revolution comes the first against the wall will be those who didn't realise the wall was there.

Ignorance is not bliss as many sheeple will soon find out...

- Pye

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Fictitious anecdote? Looks like perfectly logical maths to me. The example may be fictitious but it's a perfect analogy for the situaton that many are/will be finding themselves in.

And I'd like to add...

Mr MEWer is also facing the soaring energy costs, council tax bills, water rates and general cost of living increases that have caused his erstwhile art gallery customers to stay at home. He needs more money to cope with these costs but he's making less because his customers, facing the same costs, can't afford to buy paintings.

Yep... It's only a matter of time.

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No one is forcing anyone to buy at ridiculous prices.

No one is forcing anyone to do anything they don't want to do when buying a home. It's a personal choice.

Why are you getting your knickers in a twist about MEW ? No one is forcing you to take it out. It was a free country the last time I looked and if people want to MEW then I personally assume they are old enough and ugly enough to make a choice that's right for them. Why do you insist on imposing your morals and ethics on other people, making up fictitious anecdotes, only to ridicule them if it's not your particular way of thinking ? Why the morbid phobia about debt ? Not all debt is bad. Mortgages are good debt. Are we to assume that the halcyon days of 1950s Britain, when hire-purchase and the never-never were such dirty words, should come back? And most people lived in a wonderful council-housed Utopia, complete with outside lavatories, coal fires, tin baths, Izal lavatory paper and commuting to work on the Clapham omnibus ? I much prefer my mortgaged piece of luxury and creature-comforts now, rather than waiting, thank you.

Absolutely right. Unless somebody has a gun to your head, no one had to indulge in MEW. Ignorance of the potential consequences cuts no ice with me. Why are we all worrying what's going to happen to all these morons who've MEW'd to pay for a flash car, fancy vacations, plasma TVs, country weekend breaks, restaurants etc etc? It's all going to end in tears, we all know that. I won't be shedding any tears for these greedy, vacuous nobodies who've lived beyond their means and end up losing their house, their marriage and their 'status'. Call me a *******, call it schadenfreude. I've been living well within my means for the past 10 years to take advantage of the fall-out, and it's happening now. Good.

In 15 years time they'll be another generation living beyond their means on the back of a property boom and it'll all go pear shaped, again. That's life. Greed, jealousy and fear will be around forever.

Some people here are very soft indeed. I'm strictly Old Testament; eye for eye, tooth for a tooth.

Edited by shermanator

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Guest Winners and Losers

Absolutely right. Unless somebody has a gun to your head, no one had to indulge in MEW. Ignorance of the potential consequences cuts no ice with me. Why are we all worrying what's going to happen to all these morons who've MEW'd to pay for a flash car, fancy vacations, plasma TVs, country weekend breaks, restaurants etc etc? It's all going to end in tears, we all know that. I won't be shedding any tears for these greedy, vacuous nobodies who've lived beyond their means and end up losing their house, their marriage and their 'status'. Call me a *******, call it schadenfreude. I've been living well within my means for the past 10 years to take advantage of the fall-out, and it's happening now. Good.

In 15 years time they'll be another generation living beyond their means on the back of a property boom and it'll all go pear shaped, again. That's life. Greed, jealousy and fear will be around forever.

Some people here are very soft indeed. I'm strictly Old Testament; eye for eye, tooth for a tooth.

Hmmmm - agree. I find it interesting that you have to add 'Dulwich actually' under saaaaarf London - like because you are in Dulwich it makes it OK to live in saaaarf London? Get yerself down to Brixton. Now that's what I call saaaaarf London!

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It's the result of excellent PR, people really think they've earnt this money, years ago it was called a second mortgage and looked down upon - "her at number 21 has had to take out a second mortgage you know, obviously money troubles".

Of course 'extracting equity' then paying twice as much back with interest is fine, that's completely different than say taking out a massive five figure securitised loan for 25 years with open-ended interest rates.

Fast-forward to 2025

Bank: You know that £40k you 'extracted' for your 4x4

MEWer: You mean the Landrover I bought in 2003? I sold it for scrap in 2010.

Bank: Not much call for them?

MEWer: Not for something that did 15 miles to the gallon, it was £3 a litre back then, seems silly now it's £10.

Bank: That's nice, I thought they always went up in value. Anyway, in just another 3 years it'll be finally paid for.

MEWer: :o

Bank: I wouldn't be worried about petrol, you're paying £90k for a scrap bit of metal you sold 15 years ago. Anyway, as a reward you get to stay in your own home.

MEWer: The one I bought outright for £60k in 1980?!?

Bank: Are you thinking of going on holiday this year, you look kind of stressed, the bank would be more than happy to help. Here, have a lollipop whilst you think it over.

Edited by BuyingBear

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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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